The High Interest Saving Account

2007-03-08 10:33:40

( Financial )



The High Interest Savings Account
A high interest savings account is a savings account that offers interest rates above those normally given to deposits.

Normal Savings Account Interest
Ordinary deposits are usually granted between one to two percent interest per annum. Some banks offer a set of rates, each rate proportionate to the amount deposited.

High Interest Rates
A high interest rate is usually in the neighborhood of eight percent, and above.

How a High Interest Savings Account Works
The high interest saving account is able to give a better interest rate because of two factors. The first factor is that the maintaining balance is higher. Since you are asked to place more money in the bank, the bank is able to offer a better interest rate. When a bank has the benefit of a high maintaining balance across many accounts, it is likely to have more funds that can be used to generate profits. A bank is allowed to use some of the deposits, not all of them, for its profit-oriented operations. Hence, when you deposit more money, you enable the bank to generate more money. The money that is generated is shared with the depositors in the form of the annual interest granted to their savings accounts.

The second factor that enables a high interest saving account to offer higher interest rates is greater exposure to risk. In the money market, higher risks open the doors to higher rewards. Some high interest saving accounts require you to agree to exposure to certain risks. This happens when the bank uses part of the deposits to acquire money market placements. Naturally, these placements will expose the money to risks. Not all money market placements increase in value. However, when managed well, the funds used will yield profit in the long run, despite some occasional losses.


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