High Yield Savings Accounts

If you watch enough television, you have undoubtedly heard the term "high yield savings account". Many banks and other financial institutions are marketing high yield savings account as being almost as good as investing in the stock market: It’s safe. Zero risk. And it promises high interest rates. What more could a person want?

But just what is a high yield savings account? How does it differ it from other types of accounts?

This article will briefly explain what a high yield savings account is and where you can find them.

What is a high yield savings account?

You probably already know what a savings account is. It is a type of account where you deposit money for a relatively short period of time. A high yield savings account is like a savings account with better than competitive interest rates.

Just what is a competitive rate? Many times, banks will offer you added benefits if you open a high yield savings account. Among these perks is a higher APY, or Annual Percentage Yield. But what you consider to be a higher interest rate and what the bank considers to be a high interest rate might be two different things.

What are the requirements?

In some cases, high yield savings accounts are only offered to valued customers. You may have to hunt around for a bank or financial institution that is willing to offer you type of account. In general, in order to qualify for a high yield savings account, you may need to meet any one or more of the following criteria:

Make a large deposit of your initial account. The banks will usually inform you how much is sufficient. Be aware, however, that some banks will insist that you keep that high amount in your account as a minimum balance.
You may be required to keep a certain balance in your account, perhaps lower than your initial deposit.
Limit your transactions in or out of the account.
Have other banking transactions. Be aware that these other banking transactions will incur fees. Make sure that the extra interest won't be eaten up by the extra fees that the bank may charge you.

Where can you find high yield savings accounts?

Internet banking, or so-called "branchless banking", has enabled financial institutions to offer bank-like services online. These services allow you to open accounts online, apply for loans and mortgages online, and to make withdrawals from ATMs. Because these banks are "branchless", they can offer higher rates and much lower fees. Many financial institutions have opened Internet banks, making the field very competitive, and making it one of the best places to look for high yield savings accounts. Moreover, initial deposits are low. Some Internet banks allow costumers to open a high yield savings account for as little as a dollar. Note also that if you bank on the web, there are fewer restrictions. As long as you maintain a minimum balance (generally lower than "brick-and-mortar" banks), you can make as many transactions as you want. One drawback however, is that you may have to link your checking account with your savings account in order to make withdrawals, since some online savings accounts may not allow you to directly withdraw funds from your account.

Given the fact that many regular banks now charge you more in fees than they pay in interest, opening a high yield savings account through an online bank may be the smart financial thing to do. As always, check around, ask questions and compare before opening up a new account anywhere.

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