High yield savings account is simply a savings account with better than average interest rates (typically pays 20 to 25 times the national average of standard savings account). High yield is highly sought after due to higher interest rates and the flexibility it offers (letting you cash out without penalty). Having a high yield is ideal for emergency fund because it is a safe and accessible account that allows you to earn interest at the same time. Ideally, you will have minimal cash in checkings account for everyday banking while keeping backup/emergency funds in high yield savings. Any funds that you don’t need for long term should be going into investments like IRA or real estate.
You can also use high yield savings account to plan for short term goals like saving for a family trip. Compared to simple interest, compound interest earn interest on both your principal balance as well as the interest it earns. This is why high yield savings account is a great option, especially since most high yield accounts compound daily! But most of the time, it’ll deposit that interest into your account once a month. While a strong APY may play a big role when picking a account, you are going to have to read the full detail to fully understand what your true profit will be. Also, you will account for other factors like customer service or ability to withdraw without limits. Just make sure you read the fine print closely.
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