Banks offer specialised savings accounts for individuals willing to maintain high balance, and bring additional benefits for such accountholders. Known as a high yield savings account, it allows you to enjoy accelerated returns on the amount parked in the account.
What Is a High-Yield Savings Account?
A high yield savings account is a deposit account used primarily for savings purposes. Its only difference with a regular savings account is the interest earned on the amount deposited. As the name suggests, the interest rate and Annual Yield Percentage (AYP) are higher for such accounts.
Typically, the APY determines the interest one earns on the amount available on a savings account. Since this savings account ensures higher interest-earning, individuals can expect their money to grow over a short time, even when it sits idle.
You can apply for a high yield savings account in India with selected banks and park your money to meet short term requirements. Besides, there are several other scenarios wherein such a savings account can prove beneficial.
Deciding How to Use a High-Yield Savings Account
A high yield savings account can be used just like regular savings accounts for cash deposit and withdrawal, issuing cheques, transferring money online, etc. Nevertheless, due to its high APY, one can utilise these funds for specific short term requirements.
For instance, saving up for a vacation, planning to make a big-ticket expense, making downpayment to purchase a property, etc., are some of the purposes wherein a high yield savings account proves ideal.
The interest compounds similar to that of a normal savings accounts. However, in case of a high yield savings account, the higher interest rate promises faster multiplication of funds. The compound interest ensures you earn returns on the total available balance and not only on the initial account balance.
Let’s take a look at an example to understand the concept of a high yield savings account. You have deposited Rs. 20,000 to your savings account, wherein the annual interest rate is 4%. Hence, after a year, the amount grows to become Rs. 20,800.
On the contrary, if you deposit the same amount to a high-yield savings account with an annual interest rate of 7%, you will get Rs.21,400 after a year.
However, you should consider certain factors while opening such accounts.
What to Look for in a High-Yield Savings Account?
Following are some of the factors you must check before opening a high yield savings account:
- Interest rates
Although the interest rate of a high yield savings account is more than a regular one, you need to check if the rate is offered only for a certain period. Often banks offer higher interest rates as promotional offers, which come with validity and a cap on interest yield.
- Minimum account balance
Traditionally, a savings account requires you to maintain a minimum balance to reap exclusive benefits. However, you can also choose a zero balance savings account. In any case, you should check if the high yield savings account comes with such variants.
- Initial deposit requirements
Contact your preferred bank to check whether you have to deposit a specific amount to open an account.
- Fees
Non-maintenance of minimum account balance might attracts penalties. However, the ancillary services against such an account like ATM usage, SMS facilities, etc., entail nominal charges.
- Compounding method
A high yield savings account interest rate can compound daily/monthly/periodically or annually depending on the bank’s internal policy. Therefore, it is essential to know the compounding frequency of your chosen high yield saving account to estimate annual earnings.
- Services available
Before opening such accounts, you should also check for the standard facilities that a regular savings fund comes with, like debit card, ATM withdrawal, passbook and chequebook, etc.
How to Open a High-Yield Savings Account?
Opening a high yield savings account is straightforward. However, to expedite the process, one can also opt for the online application method. The steps are mentioned below.
- Open your browser and type ‘high yield savings account’.
- Compare different interest rates offered by banks on a savings account.
- Visit your preferred bank’s website and navigate to the ‘savings account’ category.
- Choose ‘high yield savings account’ and click on ‘open now’.
- Fill up the designated online form and enter the necessary details.
- Complete the KYC formalities.
- Once the verification is complete, it will be activated within two business days.
A high yield savings account can be a useful alternative to risky investment. Besides security and higher interest yields, these accounts support all banking services that a regular savings account offers. However, you must make sure to check the bank’s credibility before proceeding to open a high yield savings account.
