High Yield Savings Account (HYSA)

High Yield Savings Accounts are a type of savings account that offer much higher annual percentage yields (APY) on your deposits than traditional banks. Before choosing a high-yield savings account, consider the following: 

  1. Ensure your deposits are insured through the Federal Deposit Insurance Corporation (“FDIC insured”). 

    1. If you have over $250k, you may need to consider opening multiple accounts under different banks.

  2. The minimum deposit is needed to be eligible for the quoted annual percentage yield (APY) and to avoid unnecessary fees. 

    1. Some HYSAs (such as AMEX, as of the time of this writing) do not require a direct deposit or minimum balance.

  3. What features are you looking for?

    1. Some online banks such as Ally offer “savings buckets” to help with budgeting and saving towards different goals.

    2. How liquid do you need your money to be? Some banks offer same-day transfers, while others may take several business days to process your deposit/withdrawal.

  4. HYSAs offer variable yields. In other words, the interest you accumulate month-to-month may increase or decrease over time.

Read more: https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp

Popular High-Yield Savings Accounts to Consider: 

  • Wealthfront 

  • Marcus by Goldman Sachs

  • American Express

  • Ally 

  • Betterment 

  • Citi Bank

  • Discover

  • Capital One

Certificates of Deposit (CD)

A certificate of deposit (CD) is another type of savings product that allows an individual to earn fixed interest on a certain amount of money after leaving that entire amount untouched for a fixed period. Not all CDs are equal–the term length of a CD typically ranges from 3 months to 5 years. When the CD reaches its full term length, the CD is said to “mature”. 

Pros: 

  • Safe investment as long as you don’t withdraw your funds before CD maturity (see cons)

  • The fixed rate you receive is locked in and does not change over time

  • The return on your investment is virtually guaranteed, which allows for better financial planning

  • Can utilize CD laddering strategies to maintain liquidity and leverage changing interest rates. 

Cons: 

  • You must leave the entire lump sum untouched until the certificate of deposit matures, otherwise, you will receive a penalty on your withdrawal. The penalty amount may vary based on the remaining CD term. 

  • If the fees from the early withdrawal penalty are greater than the interest accrued, then the financial institution may take the difference from your original principal deposit before giving you your funds.

  • May not grow as quickly as funds invested in the stock market or other investment assets.

  • Less liquid than HYSA, money market accounts, and checking accounts. 

Money Market Account (MMA)

A Money Market Account (MMA) is a product that is offered by traditional and online banks, and credit unions. MMAs are interesting-bearing accounts that offer some of the benefits of both checking and savings accounts. Think of MMAs as a hybrid between a checking and a savings account. 

Here are some of the benefits:

  • Allow you to earn interest on your deposits, hence “interest-bearing” (interest rate returns are typically greater than those offered by traditional savings accounts)

  • May provide you with a debit card for when you want to complete transactions

  • Allows check-writing against the balance in your account

  • FDIC insured up to $250,000

Here are some of the downsides of MMAs: 

  • May require a minimum balance to avoid fees 

  • Depending on the institution, they may limit the number of transactions per month. This rule used to be enforced by the Federal Reserve at six (6) transactions per month; however, since April 2020, the Federal Reserve no longer requires this rule though banks may still enforce this rule. 

Note: 

Money Market Accounts (MMAs) are not the same thing as money market funds.