High-yield savings accounts vs. regular savings accounts: Which is better?
Savings accounts are a great place to save money for an emergency fund or for short-term goals like a wedding or vacation. There are two main types of savings accounts. High yield savings accounts and traditional savings accounts.
Both types are FDIC insured, which means your deposits are protected per bank up to $250,000 per account. Both allow you free access to your money, Compared to products like CDs, which penalizes you for withdrawing funds before the end of the period. Both types of accounts also earn compound interest. Their interest rates vary based on the federal funds rate, so when Inflation is increasingyour money grows faster.
The biggest difference is that high-yield savings accounts offer — you guessed it — higher yields. The average interest rate on traditional savings accounts is currently 0.33%, while the average interest rate on high-yield accounts is 3.5% to 4.5% or higher. It is about 11 to 14 times more.
With such a stark contrast, you might think Choosing a high-yield savings account is a non-brain. But not necessarily. Find out below how the product is best for you.
If you think you could benefit from a high yield account. Start exploring your options to see how much more you can earn..
When is a high yield savings account better?
For many people, a high-yield savings account is the better choice. Here are three times when it might be a better option for you:
- When you want a higher interest rate: The difference in interest rates between traditional and high-yield savings accounts can really add up over time. For example, let’s say you have $1,000 in savings. At current interest rates, you’ll earn just $3.30 per year with a regular savings account. In contrast, a high-yield savings account will earn $35.57 to $45.94. The higher the balance in your account, the bigger the difference.
- When you’re happy to do all your banking online: Many of Best High Yield Savings Accounts Offered by online banks, which often do not have physical branches. If that doesn’t bother you, a high-yield savings account is a potential winner.
- When you want to save on fees: Because online banks don’t have the overhead of brick-and-mortar locations, they can pass those savings on to customers. As a result, many offer lower fees than traditional banks, such as monthly maintenance and overdraft fees.
Check current savings rates here To find the best high yield savings account for you.
When is a regular savings account better?
Although they don’t earn much interest, regular savings accounts have their advantages. Here’s when they might be your better option:
- When you prefer to do your banking in person: Some people like to talk to someone face-to-face when they have a question or need help. If that’s important to you, you’d be better off with a regular savings account.
- When you want easy access to an ATM: Some online banks offer ATM cards. You’ll need to see which ATMs are in their partner networks, and you may pay a fee to use them. While not all traditional savings accounts offer ATM cards, you won’t be charged for using in-network ATMs, and in-network ATMs are easy to find.
- When you often need to collect cash: If an online bank does not participate in the ATM network, you must deposit your cash in a traditional bank account and transfer it to your online account. This can take longer and cost more.
- When you want multiple financial products with the same bank: Many online banks do not offer products such as checking accounts, credit cards, auto loans or mortgages. If you like the convenience of doing most of your financial business with one institution, a regular savings account may be better for you.
The bottom line
In many cases, a high-yield savings account is better than a regular account. Earning interest is one of the main benefits of having a savings account, and you’ll earn significantly more with a high-yield account. That said, there are situations in which a regular savings account might be better for you. As with any financial product, consider your personal needs. Compare your options. To find the best deal out there.
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