Introduction Savings accounts are one of the most popular ways to save money. They are widely used by people of all ages, from children to seniors. One of the benefits of having a savings account is earning interest on your savings. In this lesson, we will discuss how interest rates work, and how to choose the right savings account for you.
Understanding Interest Rates
All savings accounts earn interest, but the interest rate can vary widely. Interest rates are expressed as a percentage of your savings account balance. The higher the interest rate, the more money you will earn on your savings.
Online Banks and High Yield Savings Accounts
Online banks tend to offer higher interest rates than traditional brick-and-mortar banks. This is because they have lower overhead costs and can pass those savings on to their customers. If you are looking to earn a higher interest rate, you may want to consider opening a savings account with an online bank. Savings accounts with unusually high interest rates are called “high yield savings accounts”. These accounts typically require a higher minimum balance than traditional savings accounts, but the extra interest earned can be significant over time.
Choosing the Right Savings Account
When choosing a savings account, it is important to consider your goals and your financial situation. If you are looking to save for a short-term goal, such as a vacation or a down payment on a house, a traditional savings account may be the best choice. If you are saving for a long-term goal, such as retirement, a high yield savings account may be a better option.