There are many questions one needs to
know when looking for a high yield savings account. What are high
yield savings accounts? How do these accounts differ from regular
savings accounts? Where does this account fit into my current
portfolio? Who offers these accounts? How much does it cost
to get into a account? Would I be allowed to link this account
to my other accounts for easy transfer of funds? Is there a maintenance
or set up fee for this account? Is there a minimum balance required?
How are my deposits handled? It is important to have answers to
all these questions and more when determining where a high yield savings
account fits within your financial constraints.
High yield savings accounts are just
that, savings accounts that ideally have a high annual percentage yield
(APY). To some, they are considered a form of portfolio income. There are usually perks to having this account, such as
no monthly maintenance fee for your account, or unlimited withdrawals
or transfers between your accounts that you have at that bank.
Perks will vary by financial institution and may vary by the balance
in your account or your initial deposit.
Most financial institutions, banks, credit unions, etc., do not 'offer up' these savings accounts to just any customer. They reserve these special accounts for their most valued customers. In addition, once a customer has the coveted high yield savings account, the financial institution can impose any of the following restrictions in order to maintain the high yield and not revert to the regular savings rate:
- Limit the number of monthly transactions in and out of the account
- Maintain a high daily or monthly balance
- Maintain other banking relationships, including CD's, mortgage, checking, etc.
Internet banking has eased the ability
of consumers to attain this coveted account. Numerous Internet
banking sites offer these accounts, some of which only need an initial
deposit of $1! The trade off is that you have to do all the work
yourself, including managing all transfers and linking accounts.
Another possible issue with having this type of account through an Internet
banking site is that although you may be limited in the number of transactions
you can do each month, you will be able to do the transaction, but will
be penalized at the end of each cycle if you have not stayed within
the stated banking guidelines.
If you are Internet savvy and feel comfortable
transacting over the Internet, I recommend using Internet banking to
find and open your account. Internet banks usually impose fewer
restrictions than brick and mortar institutions and most Internet banks
have more options for deposits to your account. If you feel more
comfortable with your local branch, you should ask to speak to an account
representative and see what type of high yield savings account is available
to you through their institution. If you don't qualify for your
banks high yield savings accounts, you should shop around. These
accounts are available to most consumers with a little bit of research.
A high yield savings account should only
be a small portion of your overall portfolio, but should always be included
in one. As long as these accounts are opened at banks that are
FDIC insured or credit unions that are NCUA insured, you and your family
will enjoy a secure way to earn more interest than a standard savings
account. Individual preference is best when determining the portion
of your portfolio you want as a high yield savings account (it could
be 6 months of living expenses, college tuition, etc.). When you
reach your goal, you will need to research your options once again to
determine if maintaining the additional liquidity in your account benefits
your current and future financial situation, or if you will need to
move your money to another interest-bearing instrument.
As I said, there are different requirements
at different institutions for opening this type of account. I
have seen (and opened) a high yield savings account with as little as
$1. Researching through the Internet or your local branch account
manager will give you the information you need for your initial deposit.
Please do your research, though. Many banks will offer higher
APY for higher initial deposits. Your yield could vary .25% or
more with $1,001 instead of $1,000 initial deposit. There are
also varied ways to make deposits into your account. Make sure
you understand the ways and limitations (when are funds available to
withdraw, etc.) of your account before you open it.
It is important to remember that a high yield savings account is beneficial, safe and insured for you, your family and your financial goals. You will have to do some initial research to find the high yield savings plan that fits both your financial goals and your comfort level, but once you have set up your account you can sit back and watch your money grow.