Should I put money into a high yield CD savings account or money market?
With the recent rate cuts, you might be wondering if a high yield savings account is worth it. High yield savings accounts collect more money than traditional savings accounts, but what about a CD or Money Market Account (MMA)? Should you put money in a high yield savings account?
High yield savings accounts are usually the best choice. Here’s why.
Is A High Yield Savings Account Worth It?
Earnings on high yield savings accounts hover around 1% APY. The average interest rate in September 2020 on standard savings accounts is only 0.05% for balances less than $ 100,000, as reported by the Federal Deposit Insurance Corporation (FDIC).
Despite the recent drop in rates, high yield savings accounts remain a safe option for growing your money. They are insured by the FDIC or guaranteed by the NCUA (National Credit Union Administration) for deposits up to the authorized limit in FDIC member banks.
According to Credible, some traditional bank branches offer high yield savings accounts, but most are only available at online banks. So you can browse your options here.
High yield savings accounts are often a better choice than a CD or MMA for several reasons:
- They offer a higher APY than traditional savings and some MMAs
- You can access your money up to six times per month (unlike a CD)
- You don’t have to maintain a minimum account balance like with an MMA
- You will not pay monthly maintenance fees or early withdrawal penalties
You can find the best high yield savings account deals through Credible. Credible can tell you the minimum account balance requirement of each financial institution, APY and whether an account is available in person, online only, or both.
ADVANTAGES AND DISADVANTAGES OF HIGH YIELD SAVINGS ACCOUNTS
High Yield Savings vs CDs vs Money Market Accounts
High yield savings accounts, CDs, and MMAs each have their pros and cons. Here’s everything you need to know about each savings account option.
What is a high yield savings account?
High yield savings accounts earn you higher interest or APY on your deposits. They work much the same as a traditional savings account, but because of the compound interest and a higher APY, your money will grow faster.
For example, if you deposit $ 10,000 into a 0.05% National APY savings account, you would only earn $ 5 in a year. However, if you instead put that same $ 10,000 in a high yield savings account that pays 2%, you will earn $ 200.
One of the biggest drawbacks is the limitation of six withdrawals or transfers per month. Anything over six, and you’ll pay a fee and risk closing your account. However, due to the coronavirus pandemic, the Federal Reserve has temporarily suspended this rule. You can now make an unlimited number of transfers or withdrawals free of charge.
If you are looking to save even more money, then opening a high yield savings account is a good bet. Let high yield savings accounts do the work for you. Open one today.
HOW IS THE HIGH RETURN SAVINGS ACCOUNT DIFFERENT FROM THE TRADITIONAL?
Benefits of High Yield Savings Accounts:
- Higher APY than traditional savings accounts
- FDIC Insurance
- Up to six withdrawals or transfers per month
- Compound interest
Cons of High Yield Savings Accounts:
- Rates can go up or down and are determined by the federal funds rate
- Six withdrawals or transfers per month without penalty
What is a CD?
A CD, certificate of deposit, is a lump sum that you deposit with a bank or credit union that stays in your account, untouched, until it reaches maturity. A CD pays higher interest rates than many savings or money market accounts, they offer a guaranteed rate of return, and CDs are a lower risk investment than stocks or bonds. Unlike high yield savings accounts which allow you to make additional deposits or up to six withdrawals per month, if you withdraw money from your CD before the agreed date, you likely incur a penalty.
Advantages of CDs:
- APY higher than savings accounts
- Banks offer many terms to choose from
- Prices are set at the time of deposit
- FDIC Insurance
Disadvantages of CDs:
- Money remains intact for an agreed period
- Early withdrawal penalty in most cases
What is a money market account?
MMAs typically pay higher interest rates than traditional savings accounts. They also often include a debit card and check writing privileges. They are a little less flexible than a regular checking account and require you to deposit a certain amount of money to open your account as well as to maintain a minimum balance. Like high yield savings accounts, MMAs are insured by the FDIC.
Benefits of a money market account:
- Competitive interest rates if you maintain a high minimum balance
- FDIC insured
- Check write and debit privileges
- Easy access to your money
Disadvantages of a money market account:
- Limited to six transactions per month
- Monthly maintenance fees
- You must maintain a minimum balance
- Interest rates can be low unless you maintain a high balance
How Does Interest Work on a High Yield Savings Account?
High-yield savings accounts are closely tied to the benchmark rate, or federal funds rate, set by the Federal Open Market Committee (FOMC). The federal funds rate is the interest rate that banks and credit unions use when they borrow and lend balances to other banks and credit unions overnight.
The rates on high-yield savings accounts fall when the Federal Reserve lowers the federal funds rate. When the Federal Reserve raises rates at a future date – which it likely will – rates on high-yield savings accounts are also expected to rise.
If you want to maximize your savings, you need to open a high yield savings account today.
High yield savings accounts consist of interest. This means that you not only earn interest on the principal balance, but also on interest that you have already earned over a certain period of time, usually monthly or quarterly. Over time, the increase in income can accumulate, even when interest rates are at their lowest.
OPEN A HIGH RETURN SAVINGS ACCOUNT TO EARN MORE INTEREST ON YOUR MONEY