High Yield Savings Account

2007-03-08 10:33:40

( Financial )



The High Yield Savings Account
A high yield savings account is offered by banks which are able to invest deposits in money market placements, or in separately managed funds.

How do High Yield Savings Accounts Work?
High yield savings accounts are able to give interest rates such as five percent per annum to even more than ten percent per annum by investing the deposited money. The money will no longer be kept through traditional means, which usually involves placement of money in low-risk safe securities, such as treasury bills. These securities allow banks to guarantee safety and meager growth to deposits. In order to make more money with your deposit, the deposit will either have to be in great sums, or placed in areas of higher risk, or both. A high yield savings account will usually require that you agree to one or both terms. You will usually need to make a high initial deposit, and you will have to agree to expose your deposit to certain managed risks in the money market.

The Benefits of a High Yield Savings Account
A savings account with normal rates can hardly keep up with inflation. With a high yield savings account, you have the chance to stay ahead of inflation and even make money over time. However, be aware of the risks. Let the bank explain each risk to you before you say yes.

Some Things to Consider
High yield savings account function as semi-investments. You must understand that a high yield savings account will expose you to risks. These risks are managed by experts, who are usually able to exploit the money market and earn profits for the bank. This is the usual case. In the event that money is not made, the bank will not guarantee that your money will grow. Some high yield savings accounts provide a range of growth, and not a single rate. Some accounts will offer a minimum growth. When a minimum growth is guaranteed, they usually keep the maximum at a lower limit, to protect the bank's interests.


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