|
|
Grow Your Savings Risk-Free during a Recession – with a High Yield Savings Account
|
As the American economy struggles to fight off a recession, many people are wondering how they can grow their savings risk-free. With T-bonds performing poorly, and corporate bonds becoming a risky investment, investors are at a loss for the best financial instrument.
Although our options are indeed limited, the sophistication of new financial instruments can continue to grow your savings at competitive, risk-free rates. The solution? High-yield savings accounts.
The solid returns on high-yield savings accounts
Whereas high-yield savings accounts were previously only reserved for the extremely wealthy, they are now available to more of the population, due to changes in technology and the online banking industry.
When you take advantage of high-yield savings accounts, you earn returns that are equivalent to other types of investments – with the exception that savings accounts are risk-free. Thus, high-yield savings accounts are one of the few financial instruments that defy the risk-to-reward ratio. Indeed, you can earn greater rewards without having to succumb to any investment risk.
The Annual Percentage Yield (APY) interest rates between a high-yield savings account and a traditional savings account are dramatically different. For example, the Wells Fargo Money Market Savings account has an annual APY of 0.2%. In contrast, the ING Direct Electric Orange high-yield savings account pays 3.2% - three percentage points more!
Although 3% may not initially sound much different, let us evaluate the difference you will earn.
|
Account
|
APY %
|
Interest on $50k
|
Interest on $100k
|
|
ING Direct Electric Orange
|
3.2%
|
$1,600
|
$3,200
|
|
Wells Fargo Goal Savings
|
0.2%
|
$100
|
$200
|
By simply choosing a high-yield savings account, you earn an extra $1500 on $50,000, or $3000 more on an account worth $100,000. Your “investment” is still completely risk-free with the ING Direct high-yield savings account, as it is backed by the FDIC, yet your money is working much harder for you. In ten years, you could have an extra $15,000 or $30,000 to your name (not including the power of compound interest), simply by making a smarter banking decision!
Choosing the right bank to open a high yield savings account
Keep in mind that not all high yield savings accounts are created equal. In fact, more so than other types of accounts, many banks will have you jumping through loopholes to earn this type of interest. If you choose a brick-and-mortar bank, for example, you will be subject to several requirements to open a high yield savings account:
Deposit a significantly large amount of funds
Maintain a very high balance in your savings account
Have minimal transactions in the account
Open other accounts and relationships with the bank
Needless to say, it is difficult for most consumers to quality for these banks. However, internet banks are exceptions to the stringent requirements.
By choosing an internet bank account, you are typically subjected to much less stringent requirements – while the money is still backed by the same FDIC that guarantees brick-and-mortar banks. There are several differences between brick-and-mortar banks and online banks when it comes to high yield savings accounts:
Online banks do not have minimums. Regardless if you have $100 to your name or $1,000,000, you can have your money working for you – growing your wealth one month at a time.
Online banks do not have fees. Whereas brick-and-mortar banks typically charge monthly account maintenance fees, most online banks do not – thus saving you more money, while you earn more with an online high yield savings account.
Your money is liquid with online banks. In order to earn the same level of interest high yield savings accounts pay, you would have to open a CD with a brick-and-mortar bank. However, with an online bank, your funds are completely liquid – and in a few clicks of your mouse, your savings account funds will transfer right into your checking account.
Your hard-earned savings are FDIC insured. Whether you choose a brick-and-mortar bank or an online bank, your savings are insured by the same organization: the FDIC.
Growing your wealth risk-free
If you are comfortable using the internet, then taking advantage of high yield savings accounts online is a financially savvy move. Online banks, such as the prominent ING Direct, can earn you thousands more annually – simply by making a smart financial decision. You can always keep a checking account at a brick-and-mortar bank, while your savings grows effectively in an ING Direct high yield savings account.
If you would prefer to stay with a brick-and-mortar account, then you can enquire with your bank as to their options of high yield savings accounts. However, keep in mind that to the brick and mortar banks, a 1.5% interest is “high yield” in comparison to their typical .2% APY. In addition, be prepared to overcome stringent requirements regarding the amount of money you must deposit and keep in your account at all times, as well as the very limited transactions you are allowed.
Millionaires and billionaires have built their wealth by working smarter – not harder. The key to wealth is not to work hard for your money – but to make your money work hard for you. Without putting your money to work, you are essentially throwing away money – funds that belong to your future wealth. Opening up a high yield savings account online, with a bank such as ING Direct, can quickly bring you closer to your wealth goals.
|
|
