Just about everyone knows the importance of a savings account. Whether you’re starting a rainy day fund or saving up for something big, cash in the bank provides peace of mind, helping you in a financial crunch.
However, there is a wrong and a right way to save money. A regular savings account is practical because you have immediate access to your money – the perfect place to stash emergency cash for an auto repair or bill. Simply go to your bank’s ATM and withdraw what you need. But if you’re looking to take your savings account to a whole new level, a regular savings account isn’t going to cut it.
An online high-yield savings account might be a better fit for your money. Here are four ways you can benefit from these accounts.
The average savings account only pays about 0.1% APY, which is barely enough to buy a cup of coffee. And if you are saving up for a major purchase, a low interest rate isn’t going to get you closer to your goals.
An online high-yield savings account is a better option regardless of your financial goals. It doesn’t matter your plans. You can save for a house, home repairs, a vacation or your kid’s college tuition, online savings accounts offer a higher return on your deposits with many accounts paying as much as 0.85% APY and 1.00% APY.
With your money in a regular savings account, you can drive to the bank anytime and withdraw cash. You may like that your money is easily accessible. However, when you’re trying to save, accessibility isn’t always a good thing.
An online high-yield savings account is linked to your account at a brick and mortar bank. Therefore, you can withdraw money anytime by completing a transfer. However, because there’s a process to getting your hands on the money, it’s less tempting to withdraw cash. And the less temptation you have, the more you can save.
A regular savings account with your bank may require a minimum opening deposit between $5 and $25. And if you aren’t familiar with online high-yield savings accounts, you may assume that these banks require similar or higher opening deposits. However, many banks, such as Ally and American Express let you get started with no minimum. Therefore, you can open an account with as little as $1.
Whether you have a regular savings account with a brick and mortar bank, or an online savings account, the same protection applies. For that matter, any money in your high-yield savings account is FDIC-insured up to $250,000.
What does this mean for you? Simply put, if the bank goes under, this insurance protects your nest egg up to the aforementioned amount, and that’s per account.