Even if you’re already saving money, you might not be putting it in the best place for your goals. If you’re debating the benefits of a high yield savings account vs a regular savings account look no further. We’ve put together a quick list of pros and cons so you can make an informed choice between the two and help your money grow.
With more and more online-only banks popping up, the differences between online savings accounts vs bank savings accounts is becoming a common question. But what are the main differences between the two?
How bank savings accounts work?
When you open a savings account at a traditional bank, it gives you a place to keep your money safe. Most savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which means that even if the bank goes under, your money is still guaranteed.
The bank pays you interest on your savings so that they can use your money for other things — usually to fund loans for other lenders. The interest they pay you is a small percentage of the interest they make on their loans. The vast majority is taken by the bank as profit.
Even though the bank uses your money to fund loans, you still can usually access to withfunds or close the account at any time.
What makes a high-yield savings account different?
The tricky part of the high-yield savings account vs regular savings account debate is that all savings accounts can be “high yield” if they earn enough interest. Traditional accounts used to be considered high-interest 50 years ago when they were earning you 8% APY. Today you are lucky to get .09%.
Today most high yield savings accounts can only be provided by online banks because they must compete with the old brick-and-mortar banks. High yield savings accounts usually earn between 1–2.2% interest APY on your balance, which is about 20x more than traditional savings accounts.
Unlike traditional brick-and-mortar banks, online banks don’t have physical branches or ATMs.
Instead, they can be accessed any time of the day (or night) from your computer or smartphone app.
With online banking you can still do all of the same things as you could at a normal bank branch, like deposit money, make transfers, and set up a debit card. Setting up an account is easy, and usually involves providing simple personal information like name, address, and social security number.
Because most high yield savings accounts are through online banks, they have lower overhead and can afford to offer more competitive rates. Instead of running the physical branches, paying employees to staff the branches, and maintenance costs, online banks can pass earnings directly on to you through the form of higher interest.
Unfortunately, it also means that you can’t go into a branch for help with making deposits, taking withdrawals, or any other in-person activities.
Other disadvantages to online high yield savings accounts include minimum opening deposits or required minimum balances. Be sure to read the fine print before you sign on the dotted line.
Should I have a high yield savings account?
When deciding between a high yield savings account vs a regular savings account, it’s important to understand what you want financially. If you can meet all of the requirements of a high yield savings account, like a minimum deposit, minimum monthly balance, and limited number of transfers per month, it could be a great way to earn more in interest than you would otherwise.
However, there are other options out there that will let you earn much more with better terms. The question isn’t, “should I have a high yield savings account?”. It should be “what are some better alternatives to savings accounts?”
We think we have one for you.
Get 4% APY on your savings with a MyConstant Flex account
There are other alternatives than just online savings accounts vs bank savings accounts. You can earn up to 4% APY on your savings with an investment account on MyConstant.
When you open a MyConstant account, your money goes into an investment pool that is used to fund collateral-backed loans. You get to benefit from the interest charge on the loan and will see the impact right in your account.
In addition to the higher interest rate, you also get unlimited free withdrawals and no hidden fees, giving you more control over your money. That means you get the flexibility you want as you watch your money work for you and help you reach your financial goals.
A MyConstant may be the best way to get a bit extra on your savings. Get started today and do more with your money.