Are you tired of making little or no interest on your savings account with just a traditional savings bank account? If yes, you don’t need to worry.
It is the right time to take a look at other options. We are talking about the high-yield savings account. Because they can pay you as large as ten times or more as compared to a traditional savings account.
You just need to follow a simple process: Deposit your money, the bank pays you interest on that money, and you make the withdrawals as needed. Your money will be more safe from market fluctuations and other risks as well.
Still not convinced? Here is what you need to know.
Contents
Defining high-yield savings account
A high yield savings account is an account that pays effective interest rates on your deposits. It is different from the traditional savings account in a way that it offers a higher annual percentage yield. That’s why these accounts are also called the best banking accounts for landlords. High-interest rates are usually because online banks or financial institutions offer these accounts with lower overhead costs. It leads more individuals to open this account.
Let’s find out in detail how a high-yield savings account can benefit landlords.
The interest rate is higher
You might be surprised to know that high-yield savings accounts usually have ten times or more annual percentage rates as compared to traditional savings accounts. Your investment can grow quickly, even more than compounding interest. Just take into account that you open a high yield savings account having a higher APY.
Some accounts even offer as high as 4% APY interest with no minimum deposit balance, no monthly service fees, and no overdraft fees, and are especially built for landlords.
Easy money withdrawal
Some high-yield savings put a limit on the number of withdrawals you can make within a specific period, but usually, there are no limits on cash withdrawals. Some accounts even offer virtual debit cards with end-to-end encryption to simplify finances.
Easily accessible funds
Landlords find it easy to quickly access their funds without any penalties or restrictions in comparison to other investment options. It is really helpful for them in case they want to cover their unexpected expenses or make the most out of the investment opportunities.
Minimum risk
Putting your money in a high-yield savings account is generally considered a low-risk investment. The reason is that these accounts are insured by Federal Deposit Insurance Corporation (FDIC) for up to 250,000 US Dollars per depositor. So, landlords feel safe and confident enough as far as their funds are concerned.
Moving on, how do real estate investors take advantage of rising interest rates on high-yield saving accounts? Let’s understand.
Investing in bonds
Generally, bond prices are inversely related to interest rates. But, all bonds are affected differently by interest rates. The relationship between bond sensitivity and interest rates is usually measured by the duration. This means the shorter the duration of the bond, the less sensitive it is to the fluctuations in the interest rates and vice versa. Moreover, higher-yielding and lower-quality bonds are less sensitive to interest rate changes. However, you can take advantage of making money in bonds with the rise in interest rates.
For instance
Consider high yield, floating rate, and corporate and municipal bonds as alternatives to treasuries. But here is the catch: investing in these bonds can come with several risks.
If you are a landlord or real estate investor, you don’t need to make any changes to your fixed-income portfolio. When your bond holdings mature, you can reinvest that amount to take advantage of rising interest rates.
Tax planning considering market volatility
Fluctuating account balance may cause unnecessary pressures on you. But they can also provide you with valuable tax planning opportunities. You can rebalance the asset allocation when stock and bond prices are low, which can lead you to upgrade your portfolio at a discount or minimize the potential tax consequences in a non-qualified account.
Yet another option is to invest in real estate syndications. It allows to pool the money of investors together. And this money can be invested in large-scale commercial real estate projects. These investments can give you the ease of steady cash flow and tax benefits like depreciation deductions.
To make a long story short
No wonder high yield savings accounts give you more return on money than a traditional banking account. You just have to evaluate your options before opening any account, and you are good to go.
Featured Image Credit: Deposit Photos
