In a move to bolster consumer confidence, the FDIC has temporarily increased its insurance limit from $100,000 to $250,000 per depositor in U.S. banks until December 31, 2009. In terms of a high yield savings account, this increases an investor's potential for growth while minimizing risk.
High Yield Interest Saving Accounts
A high yield interest account is a savings account that offers a higher-than-average rate of return on cash deposits. While the account is restricted to a certain amount of withdrawals per year, less access and fewer withdrawals translate into a higher rate of return for the owner.
A high yield return can be as high as 3.3% compounded per year which is almost as high as competitive CD at 4.24%. However, the advantage of a high yield account is that you can access the money at any time without paying a penalty. Having access to your savings in case of an emergency can make all the difference in your choice of investment solutions.
The peace of mind offered by having the access may outweigh the few percentage points of added return when you compare a money market account to a CD. However, plugging in the numbers and shopping around for the best rates will pay off for consumers who do their homework and find the best advantages for savings.
Two numbers that consumers should keep in mind when comparing money market accounts and CDs are the annual percentage yield (APY) and annual percentage rate (APR). The APY refers to the amount of interest earned during entire year after it is compounded and the APR is the interest rate for that year. The APY will be higher because it is compounded by the interest already accrued.
While it's not something they will advertise, most banks will charge fees for housing your money while other banks may not as long as you keep a certain balance in the account for a specified period of time.
For example, in an advertisement for the month of November, the online bank ETrade offered a high yield savings account at 3.3%. While this is a competitive rate, the bank limits withdraws to six per month. As long as the customer limits the withdrawals to six, they will not be charged fees.
While CDs and high yield money market accounts are insured by the FDIC and take the risk out of investing, the conservative return amounts limit growth potential as well. While the CD and high yield interest account differ in access to funds, they are close in the amount of return offered to consumers.
A high yield money account may be a wise option for an investor who is deciding the best route for an investment plan. Younger investors who are saving up for retirement will need more aggressive strategies for saving money that involve more than a few percentage point of return per year. Speak to your personal banker to determine the best investment solution for your unique financial profile.
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