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Investing in High Yield Saving Accounts can help you to maximize your income while keeping risk low. Keep reading to learn what they are, their benefits of them, and why you should consider investing in one.
What are High Yield Savings Accounts?
High Yield Savings Accounts are bank accounts that offer competitive interest rates, often as high as 5% or more. The savings account is FDIC insured and can be opened with a minimum of $100.
Types of High Yield Savings Accounts
High-yield savings accounts can be a great way to save for retirement, but not all are created equal. The most important thing you should look for when choosing a savings account is how its interest rates compare against the best savings accounts in your area. Some of the most competitive rates out there come from online banks and credit unions.
Pros of Investing in High Yield Savings Accounts
There are many benefits of investing in high-yield savings accounts. They have higher interest rates, less risk, and typically have FDIC insurance. Some people believe that this is the best type of account to invest in because of these benefits. While this may be true to an extent, there are also a number of major risks associated with high-yield savings accounts. Interest rates are only as good as the FDIC insurance and a deposit into a high-yield savings account often exposes you to a variety of risks. For example, a deposit into a high-yield savings account that has low FDIC insurance is extremely risky.
Benefits of Investing in a High Yield Savings Account interest rates on high-yield savings accounts are typically higher than standard savings accounts. These rates can range from an above-average 1.5% to a high of 6%. As you can imagine, this difference in interest rates can be substantial.
Savings accounts can also be a great way to gain access to higher interest rates for your money because you can also invest in mutual funds that are linked with high- When investing in high-yield savings accounts, it is important to remember that your principal is at risk. High yield funds are designed for investors with a short investment horizon; typically between 1 and 3 years. If you’re looking for higher returns and don’t want your money to be at risk for lengthy periods of time, you should consider other options such as stocks or bonds. For those who are interested in an ultimate safety net, cash can provide peace of mind due to its low-risk level and nominal capital loss potential.
Cons of Investing in High Yield Saving Accounts
High yield savings accounts have higher interest rates than regular savings accounts, but they come with some significant drawbacks. Fleeing to the high yield saving account in the short term can be a bad idea because it is so tempting to use this account as an emergency fund. Statements from these accounts do not count towards tax-time income and often contain hidden fees that can make the return on your investment very disappointing.
The Most Popular Types of High-Yield Saving Accounts
High Yield Saving Accounts are different from CD accounts in the sense that they don’t require you to keep a minimum balance. They have a higher interest than high yield saving accounts, but then again so do CD accounts. High-yield Savings Accounts can also be referred to as “no-penalty” accounts because you don’t lose any money if your balance falls below a certain limit.
Also, read our article about saving money on your account and rates.
The Benefits and Risks of Money Market Funds
Money market funds are a safe place to keep your money because they offer very low risk and very high returns. However, not all money market funds are created equal. Some of the biggest risks with this type of fund are that you might lose out on some gains due to inactivity or if you withdraw the money before the term ends.
High-yield savings accounts offer a substantial return on your initial investment. If you’re interested in one, consider the following four reasons to invest:
- They are widely available and accepted by banks.
- They have no minimum balance requirements.
- Withdrawals are tax-free as long as the funds are used for qualified expenses.
- Your money will grow significantly over time.