Traditional savings accounts are usually the go-to savings account for people, but a high-yield savings account may be a better option for you. While similar to a traditional savings account, a high-yield savings account offers twenty to twenty-five times the national average interest rates. High-yield savings accounts have grown with the popularity of online banking institutions, like Ally Bank. Online banks can offer higher interest rates because they do not have brick and mortar locations that require much overhead like paying rent, employees in a bank, and physical paperwork. With fewer bills, they can offer more incentives for you to put your money in their banks.
A traditional savings account could have as low as a 0.1% interest rate while a high-yield savings account could have as high as a 2.0%% interest rate. This difference could cost you a lot of money. If you have $5,000 in your traditional savings account with a 0.01% interest rate, you will receive $5 of interest at the end of the year. If you have $5000 in a high-yield savings account with a 2% interest rate, you will receive $100 of interest at the end of the year. That $95 difference is pretty substantial!