What Is a Savings Account With a High Annual Percentage Yield (APY)?
Opening a high-yield savings account is an excellent way to keep your money safe while you earn a competitive rate of return. While most traditional savings accounts pay very little, high-yield savings accounts can sometimes pay three to five times the national average. That makes high-yield accounts very attractive for savers, but those savers need to understand and abide by the rules of these accounts.
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FDIC Insurance
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As long as you open your high-yield savings account with a bank that is fully insured by the Federal Deposit Insurance Corp., or FDIC, you cannot lose a penny. The current limit for FDIC coverage is $250,000, well in excess of what most ordinary savers would have in a high-yield savings account. Always check the FDIC status of your bank before you open a savings account, since these protections do not apply if the institution is not a member of the FDIC.
Access to Cash
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One advantage of a high-yield savings account over other investments is that you have ready access to your money. If you buy a CD, you must wait until that CD matures to get your principal back without penalty. But with a savings account you can simply withdraw money as you need it. That makes a high-yield savings account a good choice for building an emergency fund to protect yourself from financial disasters.
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Minimum Balance
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Many traditional savings accounts do not have a minimum balance requirement, meaning that you can keep as much or as little as you like in the bank. But many high-yield savings accounts do have a minimum balance requirement, and if you fall below that balance you could be subject to a monthly service fee. The minimum balance required to open a high-yield savings account varies from bank to bank, so always read the fine print carefully. Once the account is open, you might be required to maintain a certain balance to avoid fees and earn the highest rate of interest.
Other Requirements
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High-yield savings accounts might have additional requirements beyond maintaining a minimum balance, so it is important to read the fine print and get a good understanding of the account. For instance, some high-yield savings accounts require you to set up and maintain a direct deposit, while others require you to make a minimum number of debit card purchases each month. If you fail to meet these requirements in a given month, your interest rate could be much lower, or you could be hit with service charges and fees.
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References
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