Pros and Cons of opening a High Yield Savings Account
Do you want to keep your savings safe AND make money? If so, a high yield savings account could be your answer. We’re going to discuss the pros and cons of high yield savings accounts and help you determine if this is the best place for you to keep your money.
From a young age, you were probably taught you should save our money. So being a good listener, you probably opened a checking and a savings account at your local bank the moment you could.
But just because your money is safe in savings doesn’t mean you won’t lose money.
In fact, in most back accounts you are definitely losing money to inflation.
There are many savings accounts out there claiming to give you higher interest on your savings than your current bank just for holding your money. AND they keep your money just as safe.
At MyConstant we’re all about money management. That’s why today we’re going to explain the benefits of high yield savings accounts to help you find out if they’re right for you.
What is a high-yield savings account?
Typically, high yield savings accounts pay between 20-25 times more interest than a traditional savings account.
Many notable banks offer high yield savings options —though typically, online banks offer the highest interest rates.
High-yield savings account pros and cons
While there are many benefits to high yield savings accounts, there are also some downsides. Understanding the advantages and disadvantages of a high yield savings account will help you decide if it’s the right fit for your finances.
Pros of high-yield savings
- A better return on your investment
The national average for savings accounts is 0.06% APY while some high-yield accounts offer up to 1.5% APY. That’s almost three times as much as a normal savings account.
- Global access
Because most high yield savings accounts are offered through online banks, they prioritize the digital customer experience. One of the biggest benefits of a high yield savings account is they are easy to access anywhere through apps or mobile websites.
Like normal savings accounts, most high-yield savings accounts are FDIC insured. You can rest easy knowing your money is insured against theft and market swings.
- Easy to open
In most cases, it’s very easy to open a new high yield savings account through an online bank. You can open an account within a few minutes to a few days.
Cons of high-yield savings
- Many require an initial deposit
Some high-yield savings accounts require you to place a minimum amount of money into the account when it’s opened. Known as an opening deposit, you may be required to put up $10,000 or more. This may be a barrier for some prospective account holders.
- Required minimum balance
Like the initial deposit, some high yield savings accounts require you to maintain a minimum balance in the account. This can be a challenge if you want to withdraw a large sum of money or need to use it elsewhere.
- Most high-yield savings accounts are online only
If you opt for a high-yield account at an online-only bank, it means you can’t withdraw funds from ATMs. This gives you less flexibility when you want to access or withdraw your money for physical cash. Also, you often are forced to pay higher ATM fees if your bank does not work with your local ATM.
- Your rates still may not beat inflation
Let’s just get it out there, even 1.5% interest doesn’t beat inflation. Right now getting into most high-yield savings accounts is basically just slapping a bandaid on the problem.
One of the biggest disadvantages of high-yield savings accounts is that your interest rate may change. It can decrease over time and lessen the amount of interest you earn in the long run.
If you want to earn, high yield savings may not be right for you
At the end of the day, high-yield savings accounts are fine if your primary concern is safety. Unfortunately, even the best rates on savings accounts today won’t even beat inflation. That means you’re still losing money in the long run.
Fortunately, new platforms are letting you earn better rates on your savings while still promising security.
Get inflation-beating 4% APY on your savings with MyConstant
Instead of earning pennies on the dollar like with a savings account, a Flex account puts your money into an investment pool. Borrowers who put up collateral get their loans funded from the pool, and then their interest goes into your pocket as they pay back the loan.
While we aren’t insured like an account with a major bank, we do our best to secure your investments through fully-collateralized loans. If a borrower defaults, their collateral is sold to cover your principal. So you don’t lose a cent.
We also offer:
- Unlimited withdrawals
- No fees to investors
- 24/7 customer service
- No minimum investment amount
- Ways to diversify your investment into crypto
Savings accounts can’t be high-yield unless they beat inflation. If you want to really earn on your savings, sign up for a free account on MyConstant today.
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