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Based on data obtained from St.Louis Fed data, the personal saving rate declined to 3.6% as the global financial crisis kicked in, but the saving rate rose to 6.4% in 2008 and peaked at 12% in 2012. However, the personal saving rate declined to 6.4%, and the rate remained sluggish until 2020, and it achieved a new high of 13.7%.
Many people put money in a savings account to earn interest and watch it grow over time. However, some savings accounts provide a significantly higher return than others, which is where high-yield savings accounts come into play.
Since the national average return on a traditional savings account is only 0.05 percent, a high-yield savings account earns significantly more interest on your savings.
As a result, people put their money in a high-yield savings account to help them reach their goals faster, whether they're saving for something immediate, like a vacation, or saving for a large expense down the road, like a down payment on a house.
What Is an Online Savings Account?
There is nothing more traditional and well known than a savings account. The basic principle is that by opening a savings account you entrust your money to a bank.
Ever since the Internet was introduced, the world of payments and banking has changed dramatically, especially during the Pandemic. From new virtual currencies to online banking, it is all a result of the online shifting. Even though online banking uses the same principles as “normal” banking, nowadays there are banks that operate only using the web.
The use of mobile banking as the primary banking method is more popular among younger households than older households, according to a 2019 FDIC report. At least 62% of young adults in the 15 to 24 years age bracket use mobile banking as the primary method to access bank account compared to only 8% of seniors in age 55 to 64 years who use mobile banking as the primary tool to access bank accounts.
They do not have physical branches and buildings and are called online-only banks. The existence of such banks is yet another drop in the vast ocean of competition between banks – the more they compete, the better the terms. This means that we are getting better and better offers.
Nowadays, most financial institutions offering online savings accounts give an interest a little higher than 0.5%. Meanwhile, online-only banks offer high-interest rates on their savings accounts. So, if you have some cash under the bed, find out a nice online bank where you can put this money and gain some interest.
However, you may also discover that, unlike traditional brick-and-mortar institutions that provide a one-stop shop for all of your banking needs, high-yield savings accounts typically limit their features or offer few or no other products. Many do not provide checking accounts and only a few provide ATM cards, necessitating all inflows and outflows to the savings account to be made via electronic bank transfer or, if available, mobile check deposit.
According to a survey by Finder.com, a majority of Americans cited satisfaction with their bank as the main reason for not using a digital-only bank. This satisfaction is shared by all generations including baby boomers (78%), Generation X (68%), and Millennials (69%). Only one in every five Americans mentioned lack of trust as the reason for not using digital-only banking.
Why it's Called High Yield Account?
A high-yield savings account is a type of savings account that pays at least 10 times the national average for a savings account. People have traditionally kept their savings account at the same bank where they keep their checking account, making transfers between the two simple and quick.
Also, with the advent of internet-only banks, as well as traditional banks that have opened their doors to customers across the country via online account opening, savings rate competition has skyrocketed, resulting in the creation of a new category of “high-yield savings accounts.”
Given the difference in rates between high-yield savings accounts and the national average, the earnings increase is significant. If you have $10,000 in savings and the national average APY is 0.05 percent, you would earn only $5 over the course of a year. If you instead invested the same $10,000 in a one-percentage-point-earnings account, you'd make $100.
With a high-yield savings account, you can withdraw or transfer funds (including electronic transfers, checks, and wire transfers) up to six times per month without incurring a penalty fee or risk having your account closed. However, due to the coronavirus outbreak, this federal law, known as Regulation D, has been temporarily suspended for all savings deposits, as people require more immediate access to their money.
However, High-yield savings accounts can come with monthly maintenance fees and/or requirements to maintain a minimum balance. But some accounts offered by banks don’t have these requirements or fees. When you do see them, make certain that the fees do not cancel out the interest you expect to earn. After all, you want your money to work for you.
Look through the terms and conditions to see how often they compound interest: It will be done on a daily, weekly, monthly, semi-annually, or annual basis.
The value of personal savings in the US has soared since the 1960s to 2020, rising from $38 billion to $2.326 trillion in 2020. In the period after 2007, the value of personal savings increased more than two-fold to $778 billion in 2010, up from $330 billion in 2005.The trend is replicated in the period from 2015 to 2020 when personal savings increased by $1.287 trillion to attain a new record of $2.326 trillion in 2020.
Advantages Of High Yield Online Savings Account
We are all witnesses of how rapidly the virtual space is expanding – online shopping, online voting, online banking. It's very convenient and only with a click of your mouse, you can purchase a product, for instance. What are the main perks of having an online savings account? Let’s begin.
Online banks do offer their customers higher interest rates on their high-yield savings accounts. They can afford to do so because their maintenance costs are quite limited – no offices and fewer employees. You should be careful because online banks can change the interest rates during the term.
Usually, they attract new clients by offering high yields but later they lower the rate. However, they can still outperform the terms brick-and-mortar banks provide.
Online banking virtually gives you access 24/7, 365 days a year. You can access your account anytime, anywhere as long as you have the login credentials. No need to go to an office and wait to be serviced.
This means that you can monitor your account information anytime, and make transactions too.
If you have any problems while online, there are usually clients support specialist who is ready to assist you.
As we know, sometimes our experience at a bank can be quite frustrating and annoying. But if you have an online banking account, you are the “boss”. This is very suitable for busy and well-organized people who want to be in charge of their operations, transactions and everything else.
Since they have only a web presence, it is only logical that only-online banks will provide their customers with the best web services. Most online banks offer a great digital experience to its customers.
Normally, brick-and-mortar banks do not invest as much in web technologies as online banks do.
How To Open An Online Savings Account
As anything else, before you start you need to do your homework. It is not very difficult but it requires your attention and time. Do your research and find banks which offer high-yield online savings accounts. Determine your purpose. Do you want a high-interest rate or to skip all ATM fees?
There are many other additional features, such as the opportunity to pay your bills online or a checking account, which may also help you choose a bank.
What Documents Do I Need?
Bringing all the right documents with you to open an high-yield online savings account can ensure that the process is smooth, and you don’t get stuck not having everything you need. Many savings accounts can be opened online so you can easily get the documents you need while at home.
Every bank is a little different, but you will need some basic items no matter where you decide to the bank. You need a passport or driver’s license or some form of government ID. You also need to social security card, your date of birth, and proof of address.
You will usually need two forms of proof of address from two different sources. If you are funding your new account with an existing account, you will need the banking information to link them together.
How Much Money Do You Need to Open an Online Account?
High yield online savings accounts usually don’t require a huge minimum deposit. They usually need about 25-100 dollars to open the account. However, you will need more to avoid the monthly fees. You will need at least a few hundred dollars in the account at all times to avoid a monthly fee.
You also don’t need the money right when you open the account in many cases. This means you can open the account and then deposit the money a few days or weeks later.
How to Choose The Best Online Savings Account?
Whether you're looking for a high-yield savings account at a new institution or are fortunate enough to have one available at your current bank, it's always a good idea to compare your options. Differences in interest rates and fees can add up over time, especially if you have a sizable savings balance. Here are some things to look for and compare:
When choosing the best option for you, take a look at the following factors:
- Interest Rate – well, since this is a high-yield savings account and the idea is to make a profit, this one is very important. Be careful because some of the rates banks offer may vary over time. Read your contract carefully before signing and make sure the rate is what you wanted and expected.
- Costs, fees, charges. What will all the fees and charges will be? Generally, most online banks don't have any fees but like the previous one, go over the conditions carefully.
- Is it FDIC insured? Some online banks are not covered by the FDIC. Avoid them.
- Customer service. Since all the things happen on the internet, you will rely on impeccable customer support. Is there such when you need it?
A survey conducted by IPSOS in February 2021 on the most valuable mobile banking features in the United States shows that 35% of the participants considered check deposit the most valuable mobile banking feature. At close range and above 30%, viewing statements and account balances, transferring funds between accounts, received 33% and 31% of the responses. 3% of the respondent did not have a bank account.
It's important that you also check out credit unions and local banks. Sometimes, they might offer very good terms on their online savings accounts. Remember – the competition is fierce.
Once you have chosen a place to open your account, perhaps you'll have to pay a small deposit. This deposit will be taken from a checking account linked to the new online savings account.
How Is Your Account Secured?
Security and protection are of paramount importance when we talk about online services and transactions. For a bank to verify your savings account, they need your identity information in order to protect themselves from fraud.
Some online banks, require from the account holder to choose a security question. In fact, this is a standard procedure when opening an account anywhere. Then you have to give the answer, which supposedly only you know. In case of a problem with your account, the bank might ask this question. Others will have your mother's maiden name as well as your previous address.
Also, if you want to have an online savings account you have to link it to a checking account. This is yet another verification and protection. This is great because you can transfer money between the two accounts if they are both active, of course.
The Potential Risks of High Yield Accounts
On the whole, online banking is very safe and secured. However, there are always risks.
Risk of Bank Bankruptcy
Even though this is quite a rare occasion, it does happen every now and then. In 2008 during the great economic recession, 25 banks in the USA failed. So make sure the bank you want to open an account with is Federal Deposit Insurance Corporation (FDIC) insured. It's also recommended to keep your deposit under the maximum coverage limit (currently $250,000 per deposit). What does this mean? If your lender fails, then this money (250,000) will be secured and restored by the FDIC.
Do Online Savings Accounts Have Monthly Fees?
Some high-yield online savings accounts have monthly fees, but it depends on the bank you are using. Oftentimes, the fees can be avoided if you meet certain criteria such as keeping a certain monthly balance or not making too many withdraws in 30 days.
A high-yield savings account might have a monthly maintenance fee and an excessive withdrawal fee. Most savings accounts only let you withdraw 2-3 times a month. If you find yourself needing more money during the month, you might have to pay a pretty excessive fee to get out.
Hacking And Information Theft
Normally, most credible banks offer great security, and their apps and web services are well protected. All the information and processes are “encrypted” and no one else but you can have access to it. Make sure you have all the credentials somewhere safe because if someone breaks into your computer, they can steal your information and access your accounts.
How Do You Get Your Money Out Of an Online Savings Account?
The easiest way to get your money out of an online savings account is to transfer it into a checking account. If you have your checking account and savings account with the same bank, linking them together can be done on your online banking portal. Transfers are usually instant.
You can also send a wire transfer to another bank using certain apps or through the online banking portal. Some banks even allow you to make a phone call and set up the transfer on the phone.
Should I Put My Money in a Savings Account?
Saving is so important, but it is also so difficult for most people. Then, figure out how to put that extra cash to work for you. There are so many ways to use, grow, and save money these days, including good old-fashioned savings accounts.
Here are the main benefits:
- Interest Rate – even though interest rates have been extremely low since 2008, a savings account will still earn interest over time. Rates vary by bank, but the national average is around 0.05 percent, with high-yield interest rates reaching up even 10 times more.
- Liquid – Savings accounts are cash-based, so you don't have to worry about selling investments or making other complicated moves to get your money. You can get your money in every time straight to your pocket.
- Low Requirements – Many savings accounts can be opened for as little as $25. Some financial institutions allow you to open a savings account for as little as $1, so you can start saving with a small amount.
- No lock-in period – You're not locked in for a set period of time, so you can switch savings accounts whenever you want.
- Secured – A savings account at an FDIC-insured bank (Federal Deposit Insurance Corporation) insures your money up to $250,000. If you use an NCUA-insured credit union, your account is also insured up to $250,000.
- Easy Access – Unlike long-term investment accounts, savings accounts are simple to open and allow you to withdraw and deposit funds at ATMs or through 24-hour online access at any time (within federal limits). Many financial institutions will allow you to link your savings account to another account, such as a checking account, allowing you to avoid costly overdraft fees. This also allows you to transfer funds from one account to another quickly.
However, there are some significant drawbacks to put your money ina savings account, here are the top thing you should know:
- Inflation – this is the big risk for savings account as of 2022. Inflation is rising during 2021, while the yearly inflation is much higher than the bank interest – means the power of your money is getting down. If your savings account does not offer a competitive interest rate, inflation may eat away at the value of your earned interest, leaving you with an account balance that is worth less in a year's time than it is today.
- Minimum Balance Requirements – most savings accounts require a minimum balance or charge a monthly maintenance fee. If your savings account falls below the minimum balance requirement, the bank will deduct fees from your account, canceling out any interest you have earned.
- Low Rates – interest rates are lower than those found in other types of accounts or investments, such as money market accounts or certificates of deposit (CD). With the rising inflation, it's something to pay attention to.
- Federal Withdrawal Caps – savings accounts are subject to federal withdrawal limits of six times per month due to Regulation D. If you withdraw more than six times per month, the banks will charge you a fee or change your account from a savings to a checking account.
If the savings account is different than the checking account you are transferring to, it might take 3-5 business days to get your funds. Wire transfers also take a few business days. If the banks are the same, some have instant transfer options.
When you make the transfer, it should tell you how long it will take and give you a confirmation.
This depends on the bank you use and the stipulations of your banking. Most of the time you can make 2-3 transfers out of the savings account each month. This means you can move the money freely. Some bank accounts have a minimum requirement, or you’ll end up facing fees. To avoid the fees, you might have a few hundred dollars stuck in the savings account at a given time.
If you want all your money, you might need to close the savings account.
Most online bills will not allow you to directly link a savings account to auto-pay or bill pay. Savings account also do not come with checks so you can’t pay bills with checks. Mortgage accounts and auto loans also cannot be set up with savings accounts.
They should not be used to make payments or to do business. They are only designed to store extra money that you don’t need right away.
It depends on the bank you use and how high your interest is. The higher your interest is, the more money you make on $1,000. If you have 0.01$ APY, you’ll end up with $1,000.10 after a year because your interest rate is on the lower end.
If you put the $1,000 in a high-yield savings account, you could $5 or more a year depending on how high your interest rate is. Putting your savings into a high-yield account will ensure you are making more money.
While it is possible to give your consent for organizations to check your credit report, these usually relate to credit applications. You may be able to access assistance for checking your credit report, but it may be simpler to request a copy and check the details for yourself. You are more likely to be able to spot any errors, since you will be more familiar with your personal and financial details.