What is a high-yield savings account? You’re about to find out!
High-yield savings accounts are becoming increasingly popular in Nigeria as more banks and financial institutions are offering their customers more options. Simply put, a high-yield savings account is a type of savings account that typically offers a higher interest rate than a traditional savings account.
These accounts may have higher minimum balance requirements or may limit the number of withdrawals or transfers that can be made each month.
The higher interest rate can help account holders earn more money on their savings, making it an attractive option for those who want to earn a higher return on their savings while still having easy access to their funds.
Common features of a high-yield savings account
High-yield savings accounts vary from bank to bank. While traditional banks in Nigeria are only beginning to key into high-yield savings accounts, most savings apps already offer higher interest on savings.
Some of the features of high-yield savings accounts in Nigeria include:
● High-interest rates
As the name implies, high-yield savings accounts in Nigeria offer higher interest rates than traditional savings accounts, typically ranging from 3% to 10% per annum. Click here for more information about high-yield savings accounts and their interest rates.
● Minimum balance requirements
Some high-yield savings accounts may require a minimum balance to be maintained in order to earn the highest interest rate or to avoid fees.
● Limited transactions
High-yield savings accounts are known to limit the number of transactions or withdrawals that can be made each month.
● Online banking
Many banks and financial institutions in Nigeria offer online banking services, making it easy to manage your high-yield savings account from anywhere.
● Mobile banking
Also, some banks and financial institutions offer that allow you to access your high-yield savings account on your mobile device.
Saving with a high-yield savings account
Saving with a high-yield savings account can be a beneficial and smart choice for several reasons.
High-yield savings accounts can be an excellent option for people who want to earn competitive interest rates on their savings while keeping their money safe and accessible.
Some of the reasons why you should start saving with high-yield accounts include.
● More money
High-yield savings accounts typically offer higher interest rates than traditional savings accounts. This means that your money can earn more over time, helping you reach your savings goals faster.
● Insurance
High-yield savings accounts are insured by the Nigerian Deposit Insurance Corporation, NDIC, up to the maximum amount allowed by law.
This means that your money is safe even if the bank fails.
● Low risk
Savings accounts, including high-yield savings accounts, are low-risk investments because they are not subject to market fluctuations.
This means that your money is not at risk of losing value due to changes in the stock market or other investments.
● Easy access to funds
Unlike other investment options, such as certificates of deposit or mutual funds, high-yield savings accounts allow you to access your funds quickly and easily if you need them.
Factors to consider when choosing a high-yield savings account
There are factors to be considered when choosing a high-yield savings account.
It is important to ensure that your account of choice meets your needs and helps you achieve your savings goals.
1. Interest rate
The interest rate is the primary factor that distinguishes high-yield savings accounts from traditional savings accounts. Look for an account with a high annual percentage yield (APY) to maximize your earnings. You can read more about APY here.
2. Fees
Be aware of any fees associated with the account, such as monthly maintenance fees, transaction fees, or ATM fees. These fees can eat into your earnings and reduce the benefits of a high-yield account.
3. Minimum balance requirements
Some high-yield savings accounts require a minimum balance to be maintained in order to earn the highest interest rate or to avoid fees.
Make sure you can meet the minimum balance requirements before opening an account.
4. NDIC insurance
Ensure that the bank or financial institution offering the high-yield savings account is NDIC-insured. This will protect your deposits up to the maximum amount allowed by law if the bank fails.
Downsides to high-yield saving accounts
While high-yield savings accounts can offer many benefits, they also have some potential disadvantages, including:
● Limited withdrawals
Some high-yield savings accounts may limit the number of withdrawals or transactions that can be made each month. If you need to access your funds frequently, this could be a drawback.
● Minimum balance requirements
Some high-yield savings accounts may require a minimum balance to be maintained in order to earn the highest interest rate or to avoid fees.
If you cannot maintain the minimum balance, you may not be able to take advantage of the benefits of the account.
● Inflation risk
While high-yield savings accounts can offer a competitive interest rate, the rate may not keep pace with inflation. This means that the purchasing power of your savings could decrease over time.
● Limited return potential
High-yield savings accounts are low-risk investments, which means that the return potential may be lower than other investment options such as stocks, bonds, or mutual funds.
Tips for choosing the best high-yield savings account
Here are some tips for choosing the best high-yield savings account:
● Check the institution's financial stability
Make sure the institution offering the high-yield savings account is financially stable and NDIC-insured.
This ensures that your deposits are safe even if the institution fails.
● Look for additional features
Some high-yield savings accounts may offer additional features such as online and mobile banking, ATM access, and customer support. Look for accounts that offer features that are important to you and fit your needs.
● Read reviews
Look for reviews from other customers who have used the high-yield savings account. Reviews can give you an idea of the account's features, fees, and customer service.
By considering these tips, you can choose the best high-yield savings account that meets your needs and helps you achieve your savings goals.
While high-yield savings accounts can be a good option for those who want a low-risk, stable investment with a higher return than traditional savings accounts, it's important to consider the potential drawbacks and compare them to other investment options to determine the best choice for your financial goals and needs.
To help you with this decision, visit nairaCompare to compare interest rates of savings accounts and select the one that’s best for you.
