Pros and Cons of Using a High-Yield Savings Account
Source: Freepik.com
High-yield savings accounts are stable and offer higher returns, which makes them a popular choice for individuals seeking to earn more interest on their savings. But there are also specific conditions and limitations associated with these accounts that you need to follow.
In this article, we will discuss in detail some benefits and drawbacks of using high-yield savings accounts.
Pros
- Low Investment Risks
Unlike stocks and cryptocurrencies, high yield savings account with vaults does not carry any high investment risks. These markets swing wildly. It provides you with significant returns on the steep losses. Therefore, you can save your cash without any worries in these accounts as they are not at the mercy of market volatility.
- Higher Interest Rates
The high-yield savings accounts are typically offered by online banks and credit unions with lower operating costs. These organisations can afford better rates, as they do not have the expenses of managing any physical branches. That’s why high-yield savings accounts can provide you with higher interest rates.
However, if you want to reach your savings goals faster, you must look for the most reliable and reputable vaults, such as those from SoFi. You can organise your funds in their high-yield savings accounts and save money for your specific goals.
- Accessibility
In many cases, liquidity is an issue, and you cannot access your funds easily. One of its good examples is a certificate of deposit. They reward you if you leave your money in these accounts for a fixed time. But if you pull out your money before the maturity period, you will be penalised.
On the other hand, the high-yield savings accounts give you easy access to your money, and liquidity here is not an issue. This makes them an ideal place to store your money and emergency funds.
- Convenience
There are many online banks that allow you to open a high-yield savings account with no minimum balance requirements or monthly fees. Therefore, these accounts are easy to manage and can provide you with great convenience.
Cons
However, with so many benefits, there are also some cons of using high-yield savings accounts, such as:
- Withdrawal Restrictions
Although high-yield savings accounts allow you to access your money at any time. But still, there are some limits on withdrawals and the number of transfers that you can make within a time period.
- Interest Rate Volatility
The interest rates of high-yield savings accounts may not always keep pace with inflation. They can fluctuate depending on various conditions. So, there is a chance your savings may erode over time in these accounts.
- Limited Growth Potential
No doubt, high-yield savings accounts offer you higher returns than traditional savings accounts. But, they are still not ideal for long-term savings. So, if you want to grow your money quickly, you should consider other investments, like stocks and bonds.
- May Not Beat Inflation
The interest rate earned on high-yield savings accounts may not always outpace inflation. This means the buying power of your money can decrease over time. This can lead you to many severe problems and costly losses in the future.
That’s why putting all of your savings in high-yield savings accounts means missing out on many other higher-return investments. There are many other opportunities that can help you grow your money more quickly, helping you beat inflation.