Off all the passive income methods on this website this will easily be the most boring, the one with the least risk and therefore the lowest returns.
Yes, we are talking about a High-Yield Savings Account, despite the fancy name its basically a bank account that pays a slightly higher rate of interest than the standard dismal rates on your day to day current account which can be 0.01% to 1% (if you get anything at all). So obviously if you do have some excess cash keeping it an extremely low interest account where you earn very little makes no sense at all – the only winner is the bank.
In this article I will be highlighting UK banks but the same rules generally apply if you are in the US as well
These bank accounts tend to have a few drawbacks and here are some of them that I have noticed
You need to pay a ‘maintenance fee’ which can be monthly.
You need to invest a minimum amount of money at the very start which can be quite a high minimum
You need to invest XXX amount of money every month.
You need to give notice of when you want withdraw your money – there is no instant access here
A lot of these accounts are online only – so internet access required and no physical presence if you have issues (although that is getting rarer anyway)
A lot of the high interest terms are for only one year – after that time frame you drop down to the base rate they offer or move all your money and start again elsewhere
Anyway on with some of the offerings in the UK – some of these are staggeringly bad
UK Listings
Virgin Money – 1.5% interest rate with a £1 deposit , you can withdraw twice a year only and its online.
Sainsbury’s Bank – 1.39% interest rate with a £1000 deposit , you can withdraw three times a year only and its online only.
TSB Classic Plus – 3% AER on the first £1,500 and you have to deposit £500 per month
Nationwide FlexDirect – 5% AER interest on the first £2,500 of your cash, fixed for a year and you have to pay in £1,000+ each month
Metro Bank – 2% interest rate with a £500 deposit , you can open an account online or in a branch but this is for 1 year only
Post Office – 1.7% interest rate with a £500 deposit , you can open an account online. The Post Office in the UK is a big brand, so at least that’s something
Tips
Make sure your High-Yield Savings Account is protected, in the UK this is FSCS PROTECTION and in the US it is either the Federal Deposit Insurance Corporation or the National Credi Union Administration
Find out the minimum balance requirements. If you don’t meet the minimum balance, you will be charged for this.
Read the small print – minimum deposit, monthly deposit, fees, amount of withdrawals allowed – these are all gotchas when you select an account.
Pick established brands if possible – bank Of America, Chase, Nationwide, TSB are more risk-free compared to some internet only operation that no-one has ever heard off – although not always completely risk-free
Summary
I find it hard to recommend this anymore to anyone unless you want a genuinely no-risk investment (and that is debatable if you look at the last financial crisis). There are far higher return of investment opportunities out there that offer far higher returns such as P2P lending and REITs. If you look at some of the safest P2P lending options even they will pay 4% plus.
PUTTING MONEY INTO HIGH-YIELD SAVINGS ACCOUNTS
