The savings secret you're missing out on: High-yield savings accounts

The savings secret you're missing out on: High-yield savings accounts

by Boyd Hunter, CFO

Savings accounts are among the most widespread financial tools. If you keep your money in a bank, you're almost sure to have at least one of these accounts in your name. While they're undeniably common, it's important to remember they're not all the same. The terms and conditions of savings accounts can vary greatly, and certain attributes can create some major benefits for your finances. Let's look at high-yield savings accounts, and what makes them so valuable for people looking to maximize the benefits of these basic accounts.

What are high-yield savings accounts?

The easiest way to understand what makes these accounts unique is to look at their interest rates and compare them to the average offered by all savings accounts. TAB Bank, for example, currently offers an annual percentage yield of 1.80 percent for our Business Money Market account as long as the account has a minimum daily balance of $2,500. That means an annual return of $45 for an account balance that sits at $2,500. Of course, most people will continue to contribute to their savings accounts over time, and the annual yield will also contribute to the account's value. The return can continue to increase for many years to come.

An APY of 1.80 percent is especially beneficial when compared to the average yield offered by traditional savings accounts. Bankrate said the average savings account offers an APY of just one quarter of 1 percent - a 0.25 percent yield each year. Instead of a minimum deposit of $2,500 offering a yearly gain of $45, you would earn just $6.25 over the course of 12 months. The difference between the two is clear: When the option is available, take advantage of a high-yield savings account to get a strong, consistent return on money you don't plan to invest into the stock market or other financial products.

Incorporating high-yield savings into your overall financial strategy

A high-yield savings account offers some clear benefits, but it shouldn't be the only way you leverage your finances to provide a return. As Investopedia pointed out, a high-yield savings account does best when it's included in a larger portfolio. It's never a good idea to keep all of your eggs in one basket, so you should explore a variety of investment options to provide the best return possible for your specific needs. That could mean looking at stocks and mutual funds which can provide a higher rate of return but also include additional risks for losses.

You may also choose to focus on bonds and CDs, which tend to offer a lower limit on positive returns but are much more secure in terms of the financial benefits they provide. Bonds require the business or government involved to repay the principal amount paid and interest over a fixed period of time. While the possibility, however remote, of a company or government becoming insolvent exists, bondholders have an upper-level position in the repayment hierarchy. CDs, offered by financial institutions, offer very high returns. A 60-month CD from TAB Bank, for example, offers an APY of 3.20 percent and requires just $1,000 as a minimum deposit.

Of course, these investment options also have their drawbacks. Stocks and mutual funds carry a risk of direct loss due to economic downturn, while CDs and bonds take a significant amount of time to provide their full return. Mixing in these choices with a high-yield savings account offers an effective mix of risk and security, immediate access to funds and delayed returns. Consider maintaining your emergency fund in your high-yield savings account - which should be equal to three months of all of your regular expenses - as well as keeping other funds in the account until you've chosen another destination for them. The reliable return of the high-yield savings account can only help you as time goes on.

TAB Bank is here to help you make effective, safe choices with your money. To learn more, get in touch with us today.

About the Author

Boyd Hunter

Mr. Hunter is a Certified Public Accountant and received his Bachelor of Arts and Master’s degrees in Accounting from Utah State University. Prior to joining TAB Bank, he worked for eight years with Ernst & Young in that firm’s financial audit division and later became the Manager of the Salt Lake City Technology and Security Risk Services (TSRS) practice for Ernst & Young.

Mr. Hunter has also taught upper level accounting and information systems courses at Utah State University. As CFO of TAB Bank he participates in the strategic functions of the bank as well as oversees and directs all operations and personnel related to accounting, finance, information technology, and cash management. Mr. Hunter has been active with several charity organizations including many community groups and local schools.

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