Humans tend to save money for future uses. Most people save a considerable part of their earnings of retirement. However, many people consider saving money not to be enough. Additionally, increasing inflation rates can reduce the saved money value if it has no interest earnings. Thus, banks generally pay interest on any long-term savings account. Clients have the option to opt from multiple types of saving accounts. Here, our focus is on the High-Interest Rate Account.
This article will cover the following subjects in this order:
- The Specifics
- What is the catch?
- Are High-Interest Accounts Safe?
- Factors to consider when choosing a High-Interest Rate Account
The Specifics
A high-interest rate account is also known as a high-yield savings account. This account pays around 25 times the interest than a standard savings account. This special type of savings accounts developed as a response to global competition. Previously, customers kept their current and savings account in the same banks. However, the current trend of cross-border banking facilities and internet backing has changed the scenario. Now, each local bank competes with multiple global banks. As such, interest rate competition is high. Consequently, banks offer a high-interest rate account as a competitive advantage.
Generally, clients can open such accounts online. Online banks offer better interest rates than standard physical banks. Additionally, these accounts offer convenient transfer methods between checking and savings accounts. The customers who have these two accounts at different banks can also benefit from the transfer facility. Different high-interest savings accounts have different minimum balance requirements. Furthermore, there may be additional account fees attached as well.
What is the catch?
A high-interest rate account offers greater earning than standard savings accounts. However, this increased earning comes at a price. Usually, the high yield savings account institution requires the user to open their checking account at a different institution. Similarly, they may not offer extra features, such as checkbooks and money orders. Additionally, some high-interest rate accounts fail to offer ATM cards to the account holders. Consequently, it restricts the account holder to withdraw their money through electronic transfers or mobile check deposits.
Are High-Interest Accounts Safe?
All accounts in the United States, including high yield savings accounts, provide the client with federal insurance. The Federal Deposit Insurance Corporation covers any losses that may occur due to bank failures. Similarly, the National Credit Union Association covers credit union failures. You must check if the institution holds an active FDIC or NCUA number. The client must avoid any institution that fails to provide these numbers. Otherwise, they are constantly a risk of financial fraud.
Factors to consider when choosing a High-Interest Rate Account
A high yield savings account relies on multiple aspects. Customers’ recommended approach is not to rely completely on a High-Interest Rate Account for their financial portfolio. Instead, diverse and distributed investments are preferable. Moreover, most clients opt for high yield savings account to purchase a specific asset. In such cases, the client must match the available options’ annual interest rate to their need. They should base their final selection on the account that fulfills their need in the best possible way.
Additionally, customers can choose to open multiple high-interest rate accounts. However, this option may be available only with different banks. Here are a few other factors to consider as well:
- The interest rate determines how much you earn on your savings
- The required initial deposit reflects the minimum amount to open the account
- Minimum balance requirements reflect the minimum amount that your account must hold at all times
- Service fee reflects the amount taken by the bank for its services
- Connection with other banks is important for the easy transfer of money.
- Deposit and withdrawal options determine how you can insert or withdraw money from your account.
Conclusion
High-interest rate accounts offer an excellent way to boost your savings. They can be excellent long term companions for your financial needs. However, it is important to select the right account. Otherwise, you may end up having withdrawal and transfer issues. Choose safely, use wisely!
