A savings account is an essential part of any financial plan. It provides a safe place to set aside money for an urgent or unexpected expense, such as an expensive home repair or large medical bill. It also helps you save for specific goals like a vacation or wedding.
Can help you achieve these things faster than traditional ones. Because their rates are—as you might guess—higher, your money grows faster for you, and you don’t have to do anything except deposit it into the account and keep it there.
As with any financial product, it’s important to know. Below, we dispel some common misconceptions to help you understand these accounts and .
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High-yield savings account myths: What to know now
Knowledge is power. Don’t fall for these four myths about high-yield savings accounts.
Myth #1: Interest rates are always the same
Interest rates on savings accounts are based on the federal funds rate. When the Fed raises interest rates, your income increases. As the Fed lowers rates, your income falls. This differentiates them from other financial products, vizThat has fixed rates. , your high-yield savings account really shines. And if interest rates fall, you won’t lose any money (compared to investments like stocks, whose value can fluctuate from day to day).
Myth #2: They’re no better than traditional savings accounts
High-yield savings accounts have many things in common with traditional savings accounts. With both, your balance earns compound interest and your deposits are protected by FDIC insurance up to $250,000 per account per bank. They both enable you to diversify your money,. That said, not often. .
The average interest rate on a traditional savings account is currently around 0.37%. High-yield savings account rates, however, are 3.5% to 4.5% (or higher). It is about 10 times more. That alone makes it.
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Myth #3: Accessing your money is hard
One thing that sets savings accounts apart from other financial products is that they are highly liquid. That means you can access your money as needed, for free. In contrast, your funds are locked up in a CD for a certain period of time, and you pay a penalty to access them before the period ends.
That said, you need to be aware of withdrawal limits. Some savings accounts limit how much you can withdraw each month (a typical limit is six), and you may have to pay a fee if you go over that limit.
Myth #4: All high-yield savings accounts are the same
Research is key when getting the best deal. Although the interest rate remains within a fixed range, different banks offer different rates and features.
Be sure to shop around, comparing rates, fees and accessibility (whether the bank has a physical location or only operates online). Many high-yield savings accounts are offered by online banks, which may not have brick-and-mortar branches. For some people, this is not a problem, but if you prefer the option of talking to someone face-to-face, it should be taken into account.
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High-yield savings accounts are a reliable and easy way to save your money and watch it grow without any effort on your part. to find, do your homework and compare your options carefully. Then, understand once you have an account So that you can earn as much interest as possible.