When you think of savings accounts the term high yield may not immediately occur to you. After all, there are several savings accounts available on the market from all types of financial institutions. Most of them claim to be high yield or contain some other offers to entice depositors.
The term high yield, though, means that those savings instruments with that designation offer higher interest rates than traditional savings saving accounts. Your money “yields” more.
So, what are traditional savings accounts? Those are the accounts usually called something like “goal setter savings account” or “statement savings”. The minimum to open the account is usually a small amount ($1 to $50), and monthly fees are low or waived if you maintain a certain balance in the account.
High yield accounts are usually called certificates of deposit, online savings accounts, retirement accounts, money market accounts. Sometimes they are just called high yield savings accounts.
In general, a higher yield account means you maintain a larger minimum balance; have a limited amount of withdrawals available each month and you may have to open the account with more money.
Money Market Accounts: The money deposited in a money market account gets invested in financial instruments that yield (usually) higher returns. Withdrawals are limited. Checks can be written on the account. But those are limited also. You may need a large amount to open and maintain a money market.
Online Savings Accounts: Online savings accounts generally have higher interest rates because their expenses are less than their brick and mortar counterparts. An example would be an online account that yields a 1.29% annual percentage rate with no fees or minimums.
Certificates of Deposit: A certificate of deposit (CD) is a savings certificate that means the holder will receive interest on their deposit on a certain date. If the money is withdrawn prior to the maturity date, penalties will be assessed. The yields are higher on CDs because the bank essentially owes you a promissory note for the money.
Retirement Accounts: Individual Retirement Accounts (IRAs) have higher yields because they get invested in allegedly better performing financial vehicles. This means they can also have losses.
These accounts can also have tax implications and because of that, withdrawals can result in penalties.
When you are shopping for a high yield savings account make sure you do a lot of comparing and contrasting of the accounts available not only in your community but with online institutions.