5 myths about high-yield savings accounts

If you’re looking to save up cash — and do it faster — high-yield savings accounts may be your answer. Not only do they have interest rates many times higher than traditional saving accounts, but they also compound interest daily, giving you the ability to earn more — and save more — at a faster pace.

5 myths about high-yield savings accounts

Unfortunately, there are some common misconceptions about high-yield savings accounts that might push people away from these valuable tools. Want to build up your savings this year? Make sure you steer clear of these myths when considering a high-yield account:

1. The interest rate is always the same
2. It's hard to access your money
3. You'll get the best rate from your own bank
4. It's not much better than a traditional savings account
5. The only benefit is the interest rate

1. The interest rate is always the same

High-yield savings accounts have variable interest rates, which means they can change over time. Many times, this could benefit you. If market rates rise, you’d earn more interest and build those savings faster.

However, note that in some cases, it could also hurt your efforts, and your rate may drop below the initial one you signed up for. No matter which direction it goes, your rate will typically still be higher than those offered on traditional savings accounts.

2. It’s hard to access your money

The majority of high-yield savings accounts come with the same perks as a traditional one — online banking access, a debit card, and more, so accessing your money is as easy as ever. If you open your account with a traditional bank, ATMs and drive-up tellers are also an option when you’re in need of cash.

Sometimes, high-yield accounts will have limits on the number of withdrawals you can make in a certain period. This isn’t an effort to make accessing your money difficult, but instead, a move to discourage frequent withdrawals that may hurt your savings efforts.

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3. You’ll get the best rate from your own bank

While many banks offer better interest rates for existing customers, these “relationship” rates typically can’t compare with the rates offered by online-based high-yield savings accounts. With little overhead and no physical locations to manage, online accounts typically offer the best rates and the lowest fees out of all your options.

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4. It’s not much better than a traditional bank account

Though rates on high-yield savings accounts have slipped over the last year, they’re still a better deal than your average, bank-offered savings account.

Most banks offer an interest rate of around 0.01% to 0.02% on traditional savings accounts. High-yield accounts are typically double that — sometimes more, depending on the market. If this option appeals to you, consider opening up a high-yield savings account today.

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5. The only benefit is the interest rate

The higher interest rate is the biggest perk of these accounts, but the advantages don’t stop there. High-yield savings accounts also offer security (they’re insured up to $250,000 by the FDIC), and they’re usually fee-free, giving you even more cash to stow away and earn interest on.

If you opt for a high-yield account that’s not linked to your home bank, it can also remove any temptation to use the funds for impulse purchases or items you don’t really need.

Getting your high-yield savings account

If you’re considering opening a high-yield savings account to achieve your financial goals, make sure you shop around first. Consider the APY, monthly service fee, minimum balance, and any limits on withdrawals, and be sure to check your home bank as well.

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