It wasn’t that long ago that your favorite online bank account was paying nearly 4 to 5%! All of that for doing nothing except stashing your money in the bank! While the rates today are not as great as they used to be, don’t forget that a high yield savings account can still be an important part of your personal finance strategy.
You may be working on saving up for the deposit on your very own home, going on an overseas trip, or buying a brand new car. Not only will each of these efforts require a carefully devised budgeting plan and a great deal of willpower, but you can also use the stability of a high yield savings account to help as well. Here are a few reasons why:
Earning Interest:
The most common reason why many people choose to use a high yield savings account is for the accumulation of interest. The larger your sum of money, the greater the interest earned. Many banks and financial institutions offer promotional interest rates, better interest rates for making regular repayments and rewards for not withdrawing from your savings account. If you’re looking to save a great amount of money, you could see yourself earning hundreds of dollars in interest each year!
Being Rewarded for Making Deposits:
A great perk of opening a high yield savings account is that many institutions offer rewards for making regular deposits. Some banks, for instance, will provide customers with a substantially higher interest rate if they make deposits over a certain amount each month. Rewards, such as these, can encourage customers to make more frequent deposits, in turn developing great savings habits for the future.
Less Withdrawals = Better Interest:
To further encourage customers to save, enabling them to reach their goals, many banks enforce penalties for withdrawing money from your designated savings account. Most financial institutions allow a maximum of one or two withdrawals each month, before your interest rate is lowered, prohibiting you from earning large amounts of interest on your savings balance.
Scheduled Compulsory Deposits:
Sometimes saving money can be very difficult. Those brand new shoes or that great new jacket can be very tempting, often hindering your attempts at saving. Scheduled compulsory deposits are a great solution for those who need a little tough love. Agreeing upon a value with your bank, which will then be deducted from your regular income and deposited into a savings account, is a great way to achieve your goals, within your desired time frame.
A High Yield Savings Account Plus No Debt = Success:
A high yield savings account provides a smart solution for beginning on the road to financial freedom. While saving money is one of the best ways to stay out of debt, eliminating already existing debt can sometimes prove to be difficult. A number of debt consolidation solutions are available to consumers, including mortgage refinancing and debt consolidation loans. Getting your debt under control and combining it with a savings plan is the perfect recipe for financial success!
Readers – What is your favorite high yield savings account? What kind of rate are you getting?
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2) How to Budget – Introduction
3) What Would You Do With An Extra $1,000?
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Honestly, this is an area where we are seriously lacking. I have been unable to find a high yield savings account for some time. I just put it on my list to start looking again. Thanks for the reminder!
Holly@ClubThrifty recently posted..Our Vacation Budget: Did We Stick to It?
It’s only a matter of time before those rates are back up again. They’ve been so low for too long!
I personally use ing direct but they only offer 0.8% interest right now. I love their subaccount structure though!
Lance@MoneyLife&More recently posted..Buy An Older Generation or Last Season’s Product
I’m not sure I know about the subaccount structure! I switched to Ally years ago.
My wife and I currently have a couple of MMMF’s and aren’t making a whole lot (can’t remember the rate off hand) but I do know it’s better than most rates out there. I have been putting off looking into a more high yield alternative, so that is definitely on my to-do list.
John S @ Frugal Rules recently posted..Why I Love the Envelope Budget System
I’m surprised the MMMF’s are doing better! I’ll have to look into that one – I’m always looking for the best place to park my cash, even if the payout is not that much.
Where can you even find a high yield savings account? And what’s “high yield” anyway?
Veronica @ Pelican on Money recently posted..Survive this Economy – Kate Middleton Style
Few and far between!
That’s where. Technically if you’re earning more than your standard bank account (which is usually nothing), that counts as high-yield. I’ve been using Ally for quite a while, but I check BankRate every so often just out of curiosity.
I’ve been using ING Direct since 2006. Back then they paid around 3.5%, but like Lance mentioned they only pay 0.8% now.
Justin @ The Family Finances recently posted..When Did Our Little Baby Turn Into Such a Big Boy?
Those were the days!! I remember starting ING and Ally around 5% payout. How great a return was that? $500 for just parking your $10K in an account. I can’t wait until those times are back.
Hmmm I didn’t realize that some high yield savings accounts had extra benefits like this. That would make them a lot more tempting to use. I’ve been pretty biased against savings accounts since they typically offer such a low interest rate that the money is just losing value to inflation.
Modest Money recently posted..7 Considerations for Buying A Cheap Car
Unfortunately with rates so low, there aren’t very many “safe” alternatives that beat inflation.
SUCKS that we’re talking high-yield and 1% all at the same dang time. I remember graduating from high school and putting $1000 into a high-yield account that “only” got me 6%. Sigh. Those were the days.
Kathleen @ Frugal Portland recently posted..How Heartbreak is like a Water Pitcher
It does stink! If we ever got back to 6%, I would cash out everything I have and lock into that for as long as possible (as long as inflation wasn’t exceeding it). Some people would kill to have their stocks return that much!
I use ING Direct. It’s only about 0.8% but worked for out emergency fund.
Sean @ One Smart Dollar recently posted..Investing in Value Funds
That’s perfect for the emergency fund. Even though it would be nice to make a little more, the EF is there for stability and everything you earn on it is just gravy.
Seriously? If you have an emergency fund that needs to be liquid, then put it in these accounts. Once that’s covered, look into better investment options. With the Fed debasing currency, and creating another housing bubble, one would be wise to look into commodities and real estate right now. The thing with money is that is goes in a cycle. We are not incentivized to save right now, but there is incentive for investments. Get educated, put your money where it will grow, not “under the mattress” with these “so-called” high yield savings accounts. I think the only thing they yield is stress, when you realize you are actually losing money due to inflation. JMHO.
Hi Melissa. Yes, that was point – to save for short term goals and keep your money stable in case you need it soon (like for an emergency fund or upcoming house down payment). As for the other longer term and more prominent goals, you may want to check out the rest of the site. We do cover quite a bit of that.