High yield savings accounts come with the benefit of higher interest rates than conventional savings accounts. This makes them a prudent instrument for building an adequate emergency fund and meeting your short term crucial financial goals. Also, presence of higher interest rate on such accounts, allow you to protect your parked funds against inflation or at least meet the losses that are attached with it.
Check out 4 reasons to apply for savings account with high interest rates:
- Maximize your earnings faster
Interest rate of conventional savings accounts is usually below 4 percent p.a. With high yield savings accounts through small finance banks, you can enjoy a higher interest rate of up to 7 % p.a. Note that the interest rate on savings accounts is provided on maintaining a specific balance in the account. Thus, with a high yield savings account, you can earn higher interest on your hard-earned parked money, which then begins maximizing faster due to the compounding effect.
These higher interest rates can help you achieve your short term crucial financial goals having a time horizon of up to 3 years. These goals may include formation of corpus for vacation abroad, home loan or car loan down payment, etc. Moreover, such accounts can also assist you to build up a higher amount in the form of an emergency fund, which you can use in situations of sudden emergencies like clearance of medical bills, job loss etc. Thus, higher interest rates and low maintenance fees make the high yield savings account a good option to build your savings and still have instant access to funds in financial emergencies or to mitigate unplanned expenses.
- Available at minimal fee
While many savings accounts – mainly the traditional ones may come with heavy transactional charges and minimum average balance requirement, not all accounts do. In fact, owing to the lack of the overhead costs in the case of small finance banks, they may not emphasize on maintaining MAB or attract higher charges on their savings account. Minimal or no fees on accounts can further help you earn higher returns on your parked funds.
- Fund protection by DICGC
As per DICGC or Deposit Insurance & Credit Guarantee Corporation, all your deposits in banks mentioned in the 2nd schedule of RBI Act are covered up to Rs 5 lakh per bank per depositor in the case of bank failure. It covers both principal and interest components of the savings account, recurring deposit, fixed deposit, and current account. Thus, you can get higher savings returns while ensuring maximum capital protection if you open savings accounts online with multiple banks offering higher interest rates in a way that your cumulative deposits with every bank do not surpass the Rs 5 lakh limit.
- Protection against inflation
In the event of high inflation, money loses its value, and your purchasing power falls as an outcome. Putting your funds in a high yield savings account may provide a higher interest rate of up to 7 % p.a. which can assist you beat inflation marginally.
Conclusion
High yield savings accounts are a low effort and low risk medium to gain higher returns on your savings for meeting emergencies or short-term goals. With such accounts today, you can make higher returns than traditional savings accounts. While such additional earning through high yield savings accounts may appear meager in the initial stage, overtime owing to the power of compounding they make a huge difference.
