With high-yield savings accounts, you put your cash in an account with good interest rates—and then watch your savings grow faster than they would in a regular account. But there’s a bit more to the story. While the promise of extra money is tempting, there are a few strings attached that might make you think twice. Here are 11 things to think about before putting your money in a high-yield savings account.
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Interest Rate Roller Coaster
Banks can change interest rates whenever they feel like it, based on what’s happening in the economy or decisions by the Federal Reserve. As such, the great rate you signed up for can drop on a whim. This will leave you earning less than you expected and could seriously mess up your financial plans.
Getting Blinded by the Interest Rate Mirage
It’s easy to become obsessed with your interest rates and forget to consider other things that matter—like customer service. A slightly lower rate at a more reliable bank may actually be the better deal. After all, what good is a high interest rate if you’re always frustrated with the bank, or worse, can’t easily access your money when you need to?
The High Minimum Balance High-Wire Act
Some of these accounts make you keep a large sum in there to get the best rates. If your balance dips (even just a little), you’ll be knocked down to a lower rate—making the idea of a high-yield account kind of pointless. You’ll also feel like you need to constantly monitor your account balance. Who needs that kind of worry?
Monthly Fees Sneaking Into Your Pocket
No matter how much extra interest you earn, monthly fees may reduce your earnings by quite a bit. In fact, some of these fees are high enough to completely cancel out the interest you’re earning! It’s even worse if your balance isn’t that high to begin with. It makes you feel like you’re not getting anywhere.
Transaction Limit Tightrope
High-yield savings accounts don’t allow you to move your money around a lot as they usually limit how many withdrawals or transfers you can make each month. If you’re someone who likes to dip into savings sometimes, a high-yield account won’t allow you to do that. You might even have to pay penalties for going over the limit.
Waiting Games for Your Own Money
Similarly, you can’t get your hands on your cash quickly with this kind of account—you need to wait while the transfer goes through. That’s not ideal if you need that money ASAP. It forces you to plan your finances with a buffer, which, let’s be honest, isn’t always possible when you’re in an emergency.
The Online Banking Balancing Act
Many high-yield accounts are with online banks and this means there are no branches to walk into if you have a question or a problem. Instead, you’ll have to deal with customer service through phone calls or chat windows. There’s just no substitute for talking things out face-to-face & especially when it’s your money on the line.
The Spending Temptation Trap
When you earn a sizeable amount of money through interest, you might feel like you have money to burn. Soon enough, you start justifying extra spending because you think the interest you’re earning covers it—but it usually doesn’t. It’ll give you a false sense of financial security that leads to you making purchases you wouldn’t normally consider.
The Long-Term Savings Shuffle
Saving for something way down the road? Then there may be better places for your money than a high-yield savings account. Of course, these accounts are great for short-term goals. But think about it—if your money’s sitting there for years, wouldn’t you want it working as hard as possible? Stocks & bonds could give you that high growth potential you’re looking for.
The Signup Bonus Bait-and-Switch
Some banks will lure you in with a flashy signup bonus for opening a high-yield savings account—but read the fine print. You might need to jump through hoops to actually get that bonus! These bonuses often require a minimum deposit or a certain number of transactions within a set period & this can conflict with your usual financial habits.
The Safety Net Situation
There are limits to safety. The Federal Deposit Insurance Corporation (FDIC) insures your deposits up to $250,000 per depositor, per insured bank, for each account ownership category. So if you have more than that in your high-yield savings account, they won’t cover that excess amount.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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