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Savings

Benefiting from High Interest Savings Account

Interest rates are near historical lows, and while that’s good news for borrowers, it’s not good news for savers. With interest earnings on savings accounts slowing to just a trickle, it can be frustrating for those with traditional savings accounts. There are high-interest savings account alternatives, however, that can take some of the stings out of the low earnings.

High-Interest Savings Accounts vs. Other Investments

Oftentimes investors seeking high returns will turn to CDs. The advantage of high-interest savings account over a CD is liquidity; the funds are available at all times without a penalty. CDs will require that funds be left in until maturity in order to be withdrawn penalty-free.

Other common investments for those seeking higher returns are individual stocks or mutual funds. While it may be possible to earn significantly higher returns with these investments, there is no guarantee. High interest savings accounts will have a stated rate of return for a given period of time so they come with significantly less risk.

Where to Find High-Interest Savings Accounts

Savings accounts with better than average interest rates can be found both online and offline and it’s not uncommon to find accounts that offer rates as much as 3% higher than the average bank rates. Bankrate.com does a good job of tracking savings interest rates nationwide. For online accounts, it’s not necessary to use a local bank.

Strings Attached to High-Interest Savings Accounts

Many high-interest accounts will come with conditions. Commonly a minimum average balance requirement may be in place. For some accounts, particularly online accounts, a monthly direct deposit into the account may also be required. The direct deposit can be a paycheck or, sometimes, an automated transfer from another account. For two-income families, it might be advantageous to have one of the paychecks each month deposited in the high-interest account. Funds can subsequently be withdrawn or transferred to another account without penalty, provided it doesn’t affect the minimum balance requirements.

Ways of Funding Savings Accounts

Even those without large sums of money to transfer can take advantage of the returns of high-interest accounts. For some accounts, a bonus will be paid for opening the account and keeping it open a certain amount of time. Bonuses of $75 to $100 are not uncommon. After that point, the direct deposit that may be required can work as a source of forced savings for the account holder. For children, high-interest savings accounts can be a great place to park gift money or other earnings in preparation for college.

About the author

Louis Charlton

Hi, I'm Louis! I am a home-based part time trader who has built up knowledge of the stock market in my spare time (whilst drinking a lot of coffee). I hope to pass on some of my knowledge to others who want to start in this field.

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