High-Yield Savings Accounts

Welcome to Money Matters. Today I’m going over a few benefits to using a High-Yield Savings Account for your emergency fund instead of a Money Market Account.

Money Market Accounts
Money market accounts became very popular over recent years due to their high rate of interest and ability to act like a checking account. Your funds earn a great deal of interest and you can write checks as you please. However, with the current banking crisis many people are worried about their money in these types of accounts.

Though they look enticing money market accounts have their problems. The first is that your funds aren’t FDIC insured. These types of accounts are investment tools and unlike your regular checking account, you can lose your principle balance. This has been happening with newer money market accounts because the banks can’t cover their stock market losses.

While higher interest rates look appealing, there is always risk associated with them. When looking around at investment options, you have to remember that the higher the interest rate you earn, the higher the risk. Period.

High-Yield Savings Accounts
So what can you do with your (hopefully) growing emergency fund to keep the funds liquid in case you need it? One great option is to open a high-yield savings account.  These accounts like their name implies earn greater than average interest. It’s not exorbitant but it’s better than your regular savings account and far less risky than other options.

Benefits to High-Yield Savings Accounts

• The majority are FDIC insured
• You can keep the money seperate from your regular checking or savings.
• You can transfer the money to your local bank when you need it. 
• They are usually direct deposit compatible.

One of the most popular high-yield savings account is through ING Direct. The rates are modest and they are known for superior customer service. Another great feature offered by ING Direct is the ability to set up multiple accounts. You could have one for emergencies, one for each of your childrens college fund, Christmas fund, vacation fund…endless possibilities. 

There are many online banks with great interest rates. J.D. Roth over at Get Rich Slowly has a pretty good list. Go HERE to check it out.

Do you have a favorite online bank you’d like to share?