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High-yield savings account myths: What to know now

High-yield savings accounts can help you achieve your goals quicker than traditional savings accounts can. Rodolfo Arguedas/Getty Images

A savings account is an essential part of any financial plan. It provides a safe place to set aside money in the event of an emergency or unexpected expense, such as a costly home repair or big medical bill. It also helps you save up for particular goals, such as a vacation or wedding.

High-yield savings accounts can help you achieve these things quicker than traditional ones. Because their rates are — as you might guess — higher, your money grows faster for you, and you don't need to do a thing besides deposit it in the account and keep it there.

As with any financial product, it's important to know how high-yield savings accounts work. Below, we debunk some common misconceptions to help you understand these accounts and why you should get one.

See how much more you could be earning with a high-yield account here.

High-yield savings account myths: What to know now

Knowledge is power. Don't fall for these four myths about high-yield savings accounts.

Myth #1: The interest rate is always the same

Savings account interest rates are based on the federal funds rate. As the Fed raises interest rates, your earnings increase. As the Fed lowers rates, your earnings decrease. This sets them apart from other financial products, such as CDs, that have fixed rates. When inflation is on the rise, your high-yield savings account really shines. And if interest rates go down, you don't stand to lose any money (compared to investments like stocks, whose value can fluctuate wildly from day to day).

Myth #2: They're not much better than traditional savings accounts

High-yield savings accounts have many things in common with traditional savings accounts. With both, your balance earns compound interest and your deposits are protected by FDIC insurance up to $250,000 per account per bank. They both enable you to diversify your money, safeguarding it against things like bank failures. That said, more often than not, high-yield savings accounts are the better option.

The average interest rate for a traditional savings account is currently around 0.37%. High-yield savings account rates, however, are between 3.5% to 4.5% (or higher). That's roughly 10 times higher. That alone makes high-yield savings accounts worth it.

Start your search for a high-yield savings account now.

Myth #3: Your money is harder to access

One thing that sets savings accounts apart from other financial products is that they're highly liquid. That means you can access your money as needed, free of charge. By contrast, your funds stay locked up in a CD for a set period, and you pay a penalty for accessing them before the period ends.

That said, you do need to be aware of withdrawal limits. Some savings accounts limit the number of withdrawals you can make per month (the typical limit is six), and you may incur fees if you exceed that limit.

Myth #4: All high-yield savings accounts are the same

Research is key to getting the best deal when choosing a high-yield savings account. While interest rates tend to hover within a certain range, different banks offer different rates and features.

Be sure to shop around, comparing rates, fees and accessibility (whether the bank has physical locations or operates solely online). Many high-yield savings accounts are offered by online banks, which may not have brick-and-mortar branches. For some people, this isn't a problem, but if you prefer the option to speak to someone face-to-face, it's worth taking into account.

Explore your high-yield savings account options here.

The bottom line

High-yield savings accounts are a reliable and easy way to store your money and watch it grow without any effort on your part. To find the best high-yield savings account for you, do your homework and compare your options carefully. Then, once you have an account, understand how much you should keep in it so that you can earn as much interest as possible.

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