In this article, we’re answering “What is a high-yield savings account?” This article is part of our free series where we discuss how to unlock the highest returns from foreign institutions in top offshore jurisdictions, which you can access using the link above.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a High Yield Savings Account?
- What Are the Main Things to Look at in a High-Yield Savings Account?
- How to Open High-Yield Savings Accounts?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a High-Yield Savings Account?
A high-yield savings account is a savings account that has a high interest rate or APY (annual percentage yield) offered by a financial institution. In most cases, compound interest applied to the account helps account holders keep up with inflation and reach their saving goals faster.
Not surprisingly, there is a wide range of high-yield savings accounts available, ranging from deposit accounts with online banking solutions to a money market account. These accounts are offered by banks around the world, including in major financial centers like the United States and offshore banking jurisdictions like Panama.
That said, when making deposits into accounts that are designed to compound quickly in the United States, depositors benefit from deposit insurance offered by the FDIC (Federal Deposit Insurance Corporation). Other jurisdictions, like Panama and many other countries, do not offer the same level of protection through deposit insurance.
Importantly, regardless of where you open a high-yield savings account, it’s important to note that there may be withdrawal restrictions. This can be an important consideration for anyone seeking short-term liquidity.
Needless to say, before choosing where to deposit funds, you should carefully consider tax implications before opening.
How Do High-Yield Savings Accounts Work?
High-yield savings accounts work like any other savings account at a financial institution, you open the account, make a deposit, and receive a return for holding funds with the bank. However, there are two major differences between a high-yield account and a normal savings account, which are liquidity and returns.
Not surprisingly, a high-yield account offers a higher return on the account holder’s deposit. However, in exchange for a higher return, the financial institution often requires the account holder to keep their funds in the account for a longer period of time or face penalties for withdrawing early.
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What Are the Main Things to Look at in a High Yield Savings Account?
There are a number of main factors to consider when deciding where to open a high-yield savings account, including the initial deposit, interest rate, minimum balance, fees, and access to your money. We will detail each of these for you in greater detail below so you can make an educated decision on which high-yield account to open for yourself.
Initial Deposit Requirements for Savings Accounts
High-yield savings accounts typically have an initial deposit requirement in order to unlock the offered returns. This is an important consideration for anyone considering high-yield accounts because it can dictate which accounts are accessible to each person and which are not.
Interest Rates on Savings Accounts
The point of a high-yield savings account is to generate a higher-than-normal return on your deposit. With this in mind, it makes sense that you should consider the interest rate being offered. However, it is also important to consider the APY, which takes into consideration the compounding periods and can make a difference in the total returns being offered by different accounts.
Minimum Balance Requirements for High-Yield Savings Accounts
Similar to the initial deposit requirements, individuals looking to open a high-yield savings account need to consider the ongoing balance requirements. While it may be possible to reduce below the initial deposit amount, there are usually penalties for dropping below a certain minimum balance.
Bank Account Fees
Unless you are making a considerable deposit, most high-yield savings accounts will have fees attached. Before deciding which account to open, you should directly compare all of the options and the related fees in order to make an informed decision.
Account Accessibility to Your Money
As mentioned above, liquidity is one of the key differences between a high-yield savings account and a standard savings account. So, it’s important to consider whether you will have access to your funds before making a deposit in case they are required. Likewise, many banks charge fees for withdrawing money early from a high-yield account. So, it’s important for account holders to consider this variable as well.
How to Open High-Yield Savings Accounts?
To open a high-yield savings account you will first need to determine which bank you want to open accounts with. To do this, you should consider the main factors outlined and described above. In doing so, you will be able to narrow your options to accounts that you can realistically obtain in terms of deposit and that offer the returns you desire in terms of interest and APY.
After choosing the account, you can proceed with completing an application. To complete an application, you will need to submit an application online or in person at a branch of the bank. That said, in addition to a complete application, you will also need to meet other account opening requirements which we’ll explain below.
Requirements for Opening High-Yield Savings Accounts
- Government-issued identification
- Tax identification number (SSN, ITIN, or foreign tax ID)
- Proof of local address in your country of residence
- Qualifying deposit to open the account
Can You Open High-Yield Savings Accounts Online?
Yes, you can open a high-yield savings account online. In fact, whether you want to open a US account as a foreign non-resident, an offshore account, or a high-yield account in another banking jurisdiction, applications can almost always be completed 100% online without visiting a bank.
Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Where Can a Consumer Find a High-Yield Savings Account?
Consumers can find a high-yield savings account at most financial institutions. This is especially true in major financial centers like the United States. However, high-yield savings accounts are also available (often with higher interest), in offshore banking jurisdictions as well.
How Often Can I Take Money Out of a High-Yield Savings Account?
How often you can take money out of a high-yield savings account will depend on the particular account that you open. This is because each bank has different restrictions and each high-yield account has its own set of terms and conditions that account holders need to follow. That said, in most cases, you will still be able to access your money when you need it. But, certain penalties may apply.
What Should You Look for When Considering a High-Yield Savings Account?
When considering a high-yield savings account, you should look for the initial deposit, interest rate, APY, restrictions on withdrawals, and fees. That said, you should also consider the stability of the jurisdiction, the safety of the bank, and how long you ideally want to lock your deposit in a financial institution.
Can You Lose Money In a High-Yield Savings Account?
Whether you can lose money in a high-yield account depends on where the deposit is held, which financial institution holds the deposit, and how much is deposited. For example, if you deposit less than USD 250,000 in the United States with an FDIC-insured bank, you will not lose the money in the account because it is insured.
Is a High-Yield Savings Account Worth It?
If you are looking for a low-risk solution to keep up with inflation without making investments into equities, bonds, or other asset classes, a high-yield account may be worth considering. That said, it’s important to consider all of the variables outlined above prior to choosing where to open accounts and to directly compare the interest, APY, and fees offered by all of the options you’re considering.
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