5 savings account terms to know
High yield savings accounts help consumers achieve their goal of saving more money because they offer higher interest rates.
Instead of opening a traditional savings account, people can choose from banks that offer high yield savings accounts. Interest earned on deposits can be significantly higher than the percentage return on a typical savings account, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a nonprofit organization based in Washington, DC. .
“This means your money will work harder and can get you to your savings goals faster,” he said.
Find out which bank is helping you make more money with high yield savings options through Credible.
5 savings account terms to know
Here are the five key terms to know about high yield savings accounts and why they are important.
- Annual percentage return (APY)
- ACH transfer
- Certificate of deposit (CD)
- Grace period
- Due date
1. Annual percentage return
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2. ACH transfer
An Automated Clearing House (ACH) is the electronic method system that businesses, government agencies, and institutions use to make direct deposits to a bank account. Many employers use an ACH transfer to make payroll deposits, and other institutions use them to directly deposit tax refunds or unemployment funds.
OPEN A HIGH RETURN SAVINGS ACCOUNT TO EARN MORE INTEREST ON YOUR MONEY
3. Certificate of deposit
A certificate of deposit encourages consumers to save for longer by offering higher interest rates than a savings account. The interest rate is locked in and cannot be lowered during this period.
“Owning a CD allows an investor to get a potentially higher return on the cash they are looking to protect compared to leaving cash in a low-yielding bank account,” said Daren Blonski, Senior Director of Sonoma Wealth Management in California.
The duration of a CD is the length of time that money must be kept in a CD for individuals to receive the full amount of interest offered by a bank or credit union. An early withdrawal penalty is the money deducted when a consumer withdraws from the CD before the due date. If a consumer opens a one-year CD, the money must remain in the CD for 12 months or a certain amount of interest will not be paid into that account.
“A CD will charge a penalty of a set number of months of interest as part of the full term if you withdraw funds before the term expires,” said Bruce McClary. “Longer-term CDs have higher penalty fees than short-term accounts. “
A CD ladder is used by people to save money over different durations for different purposes. A consumer could have a CD of six months, one year and 18 months to receive the maximum amount of interest.
“CD scales allow you to diversify maturities and rates of return while maintaining a semi-constant cash position,” said Blonski.
The CD ladder helps people achieve higher returns over a period of years.
“A CD ladder is a strategy where you take an amount you want to save and spread the investment over several different certificates of deposit with different terms,” McClary said. “The goal is to get a range of higher returns on many accounts instead of using a single CD for the full amount. “
Unlike a high yield savings account, CDs are for longer term savings like a down payment or vacation. The money on a CD is not for expenses like paying bills or an emergency like car repair or unforeseen medical expenses.
Money for an emergency should be allocated in a high yield savings account since the money can be withdrawn at any time without penalty.
“These accounts give savers a boost when it comes to interest earned and faster reaching their savings goals,” McClary said. “Diversifying savings between CDs and high yield accounts can provide a varying level of access and earning power to serve long and short term goals. “
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4. Grace period
A grace period is the window of time a person can withdraw funds when the CD account expires and before it automatically renews, McClary said.
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5. Due date
A due date for a CD is when a person can withdraw the amount of money from the account plus any accrued interest. If a consumer opens an 18 month CD, the due date is 18 months from the day the CD is funded.
Consumers should shop around and compare the requirements a bank offers for a high yield savings account to see which one best meets their needs. Many banks no longer require minimum balance requirements or charge a monthly fee.
It can be simple to figure out quick and easy ways to save money by visiting Credible to find a high yield savings option that best meets your goals.
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