If you are tired of earning pennies on your savings, or nothing at all, it may be time to open a high yield checking or savings account. Compared to the averages, these high yielding accounts offer truly astounding rates of interest, as much as 25 times the going rate. These accounts can be very attractive vehicles for savers and consumers, but they do come with some strings attached. Here are some factors to consider before opening a high yield checking or savings account.
Your Bank My Not Offer One
High yield checking and savings accounts are specialty vehicles, and not every bank will offer one. If you want to take advantage of the higher rates, you may need to move your money to an institution that offers a high yield account.
High yield checking and savings accounts are offered by both banks and credit unions, but it still may take some work to track one down. If you do move your money to a new institution, you will need to research things like ATM fees, maintenance costs and other factors, each of which could reduce the attractiveness of your new high yield account.
You May Need to Establish a Direct Deposit
The financial institutions that offer high yield checking and savings accounts are free to set their own requirements, and that could include establishing a direct deposit. Having your paycheck deposited into your new account is one way to tie you to the financial institution in question, so it is to their advantage to set this requirement.
Establishing a direct deposit may be no big deal for the traditionally employed, but it can be an issue for gig workers and the self employed. If a direct deposit is required to qualify for the high interest rate, make sure you understand exactly what is required and whether or not your own form of payment qualifies.
There May Be Deposit Limitations
If you have a lot of cash on hand, you may think that a high yield savings account is all you need. You may be dreaming of earning thousands of dollars in interest a year, so you can just sit back and watch the cash roll in.
If that is what you are thinking, you may be out of luck. Many financial institutions that offer high yield checking and savings accounts set limits on the amounts that qualify for the favorable rates, relegating additional cash to a much lower rate of interest.
You may find, for instance, that the account you are looking at caps interest earning balances at $25,000 or that higher balances earn a low rate of interest or none at all. Once again, reading the fine print will be key, so make sure you understand all the terms of service.
You Will Likely Need to Jump Through Some Hoops
Banks are not in the business of handing out free money, nor are they interested in providing a higher rate of interest than they have to. So why are those banks and credit unions offering checking and savings accounts that pay 25 times the national average, you might ask?
The answer is both simple and complicated. Simple in terms of market forces and competition that force banks and credit unions to offer attractive interest rates and favorable terms, but that is only half of the story.
In order to offer these high yield accounts, financial institutions look for other ways to recoup their money and pay their costs, and as a result customers may need to jump through a few hoops. They may, for instance, be required to make a minimum number of debit card purchases, transactions that are free to them but for which the bank earns a fee.
If you want to open a high yield checking or savings account, you will need to read the fine print carefully and make sure you will be able to meet those requirements month after month. If you fail to hold up your end of the bargain, you could see your attractive interest rate plummet to at, or below, the industry average.
You work hard for your money, and now it is time for your cash to return the favor. If you are tired of high fees and low interest, it may be time to turn the tables. A high yield checking or savings account can provide a number of important advantages, and if you are willing to follow the rules you could soon be pocketing the extra cash.