The money you tuck away can help you check off financial goals, whether that’s building up a nice emergency fund or having enough for a down payment.
But if you’re dropping money into a traditional savings account instead of a high-yield savings account, you could be shortchanging yourself. Both types of deposit accounts are a good place to park your funds.
But with a high-yield savings account (which is sometimes referred to as a high-interest savings account) your interest earnings could be higher.
Thinking about adding a high-interest savings account to your financial mix? Here’s what you should know.
This type of bank account is pretty similar to a regular savings account. You can use it to stash away money for an emergency fund or a big purchase, like a car or upcoming vacation.
Traditional and high-yield savings accounts share two more features:
One key difference? With a high-yield account you typically get a higher interest rate than you would with a traditional savings account. As we mentioned above, that’s why these types of accounts are sometimes called high-interest savings accounts.
A quick refresher on interest: When it comes to savings accounts, interest is the amount of money you earn for leaving your money deposited with a bank.
When it comes to savings accounts, interest is the amount of money you earn for leaving your money deposited with a bank. It’s typically expressed as an annual percentage yield (APY), which is the amount of interest you could earn over a year, assuming that funds are not added or withdrawn.
APY accounts for compound interest, which is effectively making money on your money. The more often the interest compounds, the more money you could earn.
The APYs on some savings accounts might not result in a lot of change to your balance. Check out this chart to see what we’re talking about.
You can open a high-interest savings account at a variety of financial institutions including online banks or at a credit union.
To choose the right account for you, it’s a good idea to do a little bit of research and comparison shopping.
Here are a few questions to consider:
Found an account you like? Next step is to open it, which you can do in person or online depending on the bank.
The financial institution will usually ask you for a few pieces of information including:
If the account requires an initial deposit, you’ll need some funds to deposit into the new account. You can put in funds with cash, a check or wire transfer.
Once you’re done, you can start socking money away for your financial goals!
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