Should You Consider a High-Yield Savings Account? Here's What You Need to Know.
As an entrepreneur, it is essential to have a solid financial plan in place to manage cash flow and prepare for unexpected expenses.
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As an entrepreneur, it is essential to have a solid financial plan in place to manage business cash flow and prepare for unexpected expenses. One option to consider as part of this plan is a high-yield savings account. A high-yield savings account offers a higher interest rate than a traditional savings account, allowing money to grow faster.
There are both positives and potential negatives associated with high-yield savings accounts that will impact whether an individual should consider one.
The high-yield savings account basics
As the name suggests, high-yield savings accounts offer a higher yield on account balance compared to standard savings accounts. While on the surface a high-yield savings account may appear the same as a traditional savings account, there are some differences. For example, there may be a restriction on the number of withdrawals per month or year. There may also be a higher minimum balance requirement.
However, with rates that can be ten times more than a traditional savings account, a high-yield savings account is certainly worthy of consideration.
Related: The 8 Best Places to To Stash Your Retirement Savings
Reasons to consider a high-yield savings account
There are several good reasons to open a high-yield savings account.
Access to higher rates. The typical rates on traditional savings accounts are on the rise, but they still cannot compete with the rates offered by a high-yield saving account.
Less risk. While wanting a higher return on funds is typical, an individual may not be prepared for the higher risk associated with other investment methods. Most providers of high-yield savings accounts are FDIC insured. This means that there is up to $250,000 of coverage, so should there be a problem with the bank, an individual is guaranteed to get their money back.
Diversification. As an entrepreneur, it's always wise to diversify investments. A high-yield savings account can be a great complement to other investments, such as stocks or real estate, providing a stable and safe place to store some cash.
Online flexibility. A high-yield savings account is a flexible option for entrepreneurs as it allows access to funds quickly and easily. Since most high-yield savings accounts are online-based, it makes it very easy to manage money using the bank's online platform or app.
Minimal fees. High-yield savings accounts typically require a low minimum deposit and have no monthly maintenance fees, making them a cost-effective option for entrepreneurs. For example, the Amex high-yield savings account has no account minimums and no monthly maintenance fees. Always check the account terms to make sure there are no fees, but generally speaking, the fee structure is more generous compared to traditional brick-and-mortar savings accounts.
Related: 6 Best Savings Accounts of 2023
Reasons why a high-yield savings account may not be right for you
As with most financial products, there are some circumstances where a high-yield savings account may not be the right choice.
Limited earning potential. While high-yield savings accounts offer a higher interest rate than traditional savings accounts, the earning potential is still limited compared to other investment options such as stocks or real estate. Entrepreneurs looking to grow their wealth quickly may want to consider other investment options.
Maximum withdrawal limit. While the savings account is still accessible, individuals will only be able to make a maximum number of withdrawals before incurring a fee. Most banks restrict the number of times individuals can access their money each month. The only way to transfer money out is via wire transfer, electronic transfer and check, or by withdrawing funds up to six times per calendar month without incurring a penalty fee or putting the account at risk of closure.
Lack of physical branch access. Most online high-yield savings accounts are associated with banks that don't have physical branch locations. This means that should a problem arise with the account, individuals will need to rely on online or phone support.
Minimum deposit requirements. Some high-yield savings accounts require a minimum deposit, which may be too high for some entrepreneurs. Without having enough money to meet the minimum deposit requirement, there is no option for opening an account.
There could be transfer delays. While it's possible to transfer funds from one bank to the new high-yield savings account, there may be some transfer delays. The typical wait time is 24 to 48 hours for funds to be credited to the new savings account.
How to choose the right high-yield savings account for you
As an entrepreneur, choosing the right high-yield savings account can be a bit of a challenge. There are many options to choose from.
Once someone has decided that they would like to open a high-yield savings account, it's time to consider choosing the right account. With so many high-yield savings accounts on the market, it can seem a little daunting to choose the right one. However, there are some key factors to consider that will help with making an account decision.
Does it offer high rates?
High-yield savings accounts offer a higher interest rate than traditional savings accounts, but the rates can vary greatly between different accounts. It's essential to compare interest rates and choose the account that offers the highest rate.
Is there an existing relationship with the bank?
The first thing to look at is if your current bank offers a high-yield savings account. Many banks offer access to high-yield accounts, and you may be able to access better terms if you link the account to your checking account or other bank products.
Are there fees?
You will also need to check if there are any fees or charges associated with the account. If the high-yield savings account has a monthly maintenance fee, check to see if there are waiver criteria so that you don't need to pay the fee.
Does the bank offer other attractive products?
Finally, look at the other products the bank offers to see if they appeal to you. For example, some banks have an entire banking product line designed to help their customers improve their credit. In addition to a high-yield savings account, there might be a checking account with no overdraft fees, no monthly fees and a credit-builder-secured credit card.
