For many years, high-yield savings accounts (HYSAs) have been a very popular choice for people looking to save and maximize their returns via high interest rates. However, the HYSA is now facing a serious contender: the high-interest checking account.
Let’s explore why!
A high-yield savings account is a great place to store your money for an emergency fund or for near-term goals, like saving up for a wedding or a down-payment. You’re able to earn a relatively high interest rate without the risk of having to invest your money. Online banks have used high interest rates, or annual percentage yields (APYs), as a competitive edge to attract customers and are typically able to do this because they have lower overhead costs and more limited services than your traditional brick-and-mortar bank.
One of the main complaints with the HYSA is that funds are not instantaneously available. You might need somewhere between 24 to 48 hours for your money to be transferred to your checking account. For some, this waiting period isn't a big deal, but for others, this lack of flexibility might feel painful.
To combat this challenge, high-interest checking accounts are gaining serious traction as an alternative. Many are offering rates that rival HYSAs, but with the improved convenience of being able to access your money right away. They also eliminates the need to manage multiple accounts since now you can combine your checking and savings account into one.
But there are a few downsides to high-interest checking accounts to consider...
Lack of physical presence: Most high-yield checking accounts do not come from local brick-and-mortar banks, and so you’ll likely still do most of your checking account activity online. For many people this is fine, but some like the option to visit their bank in-person especially for a high-touch account like a checking account.
Risk of spending: Savings accounts are designed to help you save not spend. If you have easy access to your emergency fund/home fund/wedding fund – you name it – you may not keep to your savings goals
Risk of fees: Some high-yield checking accounts require you to maintain a minimum balance or complete a certain number of transactions to earn the advertised interest rate. Failing to meet these conditions may lead to lower rates or fees.
Lower interest rates: On the whole, the interest rates you'll find for checking accounts are still somewhat lower than those of the highest savings accounts. Now of course that can change, but it may mean you miss out on some earnings.
At the end of the day, I still personally like having a HYSA separate from my checking account. It keeps the money safe for what it is intended (my emergency fund), and I only touch that money with deliberate intention. Plus, I don't mind the extra percentage point on the interest rate in exchange for a little inflexibility.
You should spend some time thinking about the right set up for you. But in the meantime you can check out Fidelity’s Cash Management account, a popular alternative for those who want a checking account-like experience with high interest rates. Here are a few other high-yield checking accounts you can check out too!
To learn more about the types of accounts and how to prioritize your portfolio, sign up for our Learn to Invest course!
Disclaimer:
The information contained in the Yield & Spread website, course materials and all other related content is provided for informational and educational purposes only. It is not intended to substitute for obtaining accounting, tax, or financial advice, and may not be suitable for every individual. Yield & Spread is not a registered investment, legal or tax advisor or a broker/dealer.
Comentários