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Cash Fundamentals: Savings Accounts vs. High-Yield Savings Accounts Thumbnail

Cash Fundamentals: Savings Accounts vs. High-Yield Savings Accounts

When you look at all the options offered by banks and other financial institutions for places to store your savings, there's no shortage of options. Two of those options, savings accounts and high-yield savings accounts, can seem very similar. Keep reading for some of the key differences and considerations before you make a choice for your family. 

What is a Savings or High-Yield Savings Account Used For?

These two types of accounts can serve a similar purpose in your family’s financial toolkit.  If you want to earn some level of interest on your cash that means storing some money in some sort of savings account. These accounts can be a place for your family's emergency fund, downpayment for a care, preschool tuition for next semester, or other medium term savings goals. Longer term goals like saving for college, retirement, or goals more than a few years out are usually better served with other solutions or vehicles.


What Is a Savings Account?

Just as it sounds, a savings account is a bank account specifically used for saving money. Because these accounts are designed to house money on a more medium or long-term basis, they typically offer a better interest rate than checking accounts. For many, a savings account is used to cover unexpected expenses such as a job loss or sudden home repair. In addition, savings accounts can be used to save for short-term goals, such as Christmas, upcoming vacations or house renovations.

To access the money in your savings account, you will typically use your online banking system or app. Savings accounts are not usually accessed through the use of checks or debit and ATM cards. Instead, it is common to link a savings account to a checking account, where these methods of withdrawal are easily used. In fact, Regulation D limits users from withdrawing money from their savings accounts to no more than six times per month. Attempting to withdrawal more than six times could result in penalty fees or account suspensions. 



What Is a High-Yield Savings Account?

A high-yield savings account is a type of bank savings account that almost always pays a higher level of interest than the average savings account. How much more interest can they pay compared to a traditional savings account? The interest rates are often between 10 to 25 times higher than many savings accounts at any given time.

You can choose to open a high-yield savings account at your current bank or credit union or seek out a different institution. Many online only banks offer competitive rates on these types of accounts to win business away from local banks. Like other accounts at your bank these savings accounts will have FDIC protections, but rates can also vary at any time. There may also be limitations on how many withdrawals you can make in a given period.


What’s the Difference Between a Savings and High-Yield Savings Account?

A regular savings and a high-yield savings account are very similar. Fees are one of the biggest things to watch out for. Some consumers, in an effort to get a higher yield, may elect to open a new account without reviewing the potential charges. While some banks don’t have fees on certain accounts, many do. Make sure you don’t go after a higher interest rate just to have the “extra” interest lost in fees to the bank.


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Key Takeaways

These accounts are similar so you may find yourself wondering which one is best for your situation. The decision may come down to offerings at your specific bank or perhaps elsewhere if you choose to shop around. For cash that you don’t need for bills in the immediate future or for others goals like an emergency fund, a high-yield savings account can often be a good choice to earn a modest level of interest while remaining secure.

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