Traditional savings accounts pay a limited amount of interest. One of the key differences between credit unions and banks is that credit unions pay dividends to their members. These dividends are typically higher than what a bank would pay and can provide benefits that go beyond what you would find at a bank.
Leaders Credit Union offers high-yield savings accounts to members, including accounts that reward saving with tiered dividends as well as accounts that pay generous dividends for high balances. We believe that putting money into a high-yield account can be useful for a variety of reasons. Here are some suggestions about how to use a credit union high-yield savings account.
What Are the Advantages of Having a Credit Union Savings Account?
Credit unions and banks have a lot in common, but they are not the same. The primary difference is that banks operate on a for-profit basis, and their goal is to earn money for their shareholders. Credit unions are not-for-profit organizations and any financial gains are passed on to members in the form of dividends and affordable rates and fees.
With a credit union savings account, you can earn a far higher return on your savings than you would with a regular savings account. The average annual percentage yield (APY) for a bank savings account sits at 0.46% as of March, 2024.
By contrast, credit union savings accounts pay dividends at rates that are significantly higher than banks. For example, the highest dividend amount we pay at Leaders Credit Union is 0.05% and we have many accounts that pay more than that, including high-yield savings accounts.
It’s important to note that credit unions are not insured by the FDIC as banks are, but rather, by the National Credit Union Administration (NCUA) via the National Credit Union Insurance Fund (NCUIF). Deposits in credit union accounts are insured up to $250,000 per member.
What Types of Savings Accounts Do Credit Unions Offer?
Credit union savings accounts typically span a wide range of options and include accounts that are ideal for a variety of purposes. Here are some examples of savings accounts that you can find at Leaders Credit Union:
- First Forward (Prime) Savings. Our membership savings is your first account with us to encourage saving with free access to online and mobile banking.
- Future Leader Savings. Our youth savings account pays a 5% APY on your first $500 to encourage kids to be financially responsible.
- Christmas Club Savings. Save for holiday gift giving while earning dividends throughout the year.
- Vacation Club Savings. Save for your next vacation.
- Fast Forward Savings. This is our savings account designed to help members fast-track their savings with higher rates on your first $5,000.
- Forward Plus High-Yield Savings. This account pays a high rate (currently 4.25% APY) with no minimum balance or requirements.
As you can see, it’s possible to earn dividends that are significantly higher than what you would find at a typical bank.
What is a High-Yield Savings Account?
A high-yield savings account is an account that pays a high APY to encourage savings and reward credit union members who save their money. In many cases, the dividends on a high-yield account are significantly higher than they would be for a typical bank savings account.
One of the things that distinguishes a high-yield savings account from a traditional savings account is that there is often a minimum account balance required to earn dividends. Dividends may also be tiered to reward people with the most savings. However, our Forward Plus High-Yield Savings Account pays a flat 4.25% APY with no balance tiers and no requirements.
A high-yield savings account provides a way to earn more on your money than you would with a traditional savings account while still maintaining liquidity. Most institutions allow a limited number of withdrawals or transfers each month without fees.
What Are the Best Uses for a High Interest Rate Savings Account?
There are many advantages to choosing a high yield savings account, but it’s important to note that it’s not ideal for every situation. Here are three ways to use your high-yield account to take advantage of your earnings.
#1: Maintain an Emergency Fund
Most financial experts recommend that people have at least six months’ worth of expenses saved in the event that they lose a job or experience some other form of financial hardship. A high-yield savings account is a good place to keep your emergency savings.
When you deposit your emergency savings in an account that pays a high APY, you can watch your money grow while still keeping it accessible.
#2: Save for a Short-Term Goal
Many of our Leaders Credit Union members use a high-yield account to save for a short-term savings goal. As we noted above, we offer an APY that’s more than three times the national average for our Christmas Club and Vacation Club savings accounts.
People also use high-yield accounts to save to buy a new car or for desired home improvements where they prefer to pay out of pocket instead of obtaining financing. If you know you’ll be making a large purchase in the next one to two years, then a high-yield savings account can help you prepare.
#3: Save for a Major Purchase
People who are planning to buy a house may choose to use a high-yield savings account to save their down payment. Putting it in a personal savings account offers guaranteed returns, which would not be the case if that money were invested.
You can take advantage of compound interest and potentially, save on your interest rate and mortgage, by making a large down payment when you buy a house.
What Uses Are Not Ideal for a High-Yield Savings Account?
We’ve talked about the ideal uses for a credit union high-yield savings account, but we think it’s important to note that a high-yield account isn’t ideal for every purpose. Here are some situations where we would recommend against using a high-yield account.
Long-Term Savings
If you’re saving for a long-term expense – for example, saving for a child’s college education – then a high-yield savings account is not the best option. There are tax-free savings accounts, such as a Coverdell Education Savings Account or a 529 plan, that are better suited for long-term savings and offer tax advantages that a high-yield savings account does not.
Retirement
The same downsides that apply to using a high-yield savings account for college accounts apply to retirement, too. While you will earn a higher-than-average APY on your savings, you will not earn as much as you would with an investment account. There are also tax advantages that come with choosing an IRA or another tax-deferred retirement plan that are not available with a high-yield savings account.
Unlimited Access to Money
Finally, we do not recommend a high-yield savings account if you will need to make frequent withdrawals. For example, our Champion High-Yield Savings Accounts offers up to three free withdrawals or transfers per month. After that, you will pay a fee. If you need ready and unlimited access to your money, then a high-yield savings account is not the best choice.
Tips to Make the Most of a High-Yield Savings Account
If you decide to open a high-yield credit union savings account, here are some pointers to help you make the most of it.
- Choose a high-yield savings account at a credit union that pays high dividends. As we stated earlier, the national average APY for bank savings accounts is only 0.46%. If you shop around, you can earn ten times as much (or more) with a credit union high-yield account.
- Don’t withdraw funds unless you need to. If you use a high-yield account for your emergency savings, you’ll get the biggest benefit if you leave your money in place to earn compound interest.
- Don’t keep money in your savings account that could (and should) be earning more elsewhere. A savings account is a safe place for money that you may need in the short term or money that you may need to access on short notice. Long-term investments should be put in the stock market or other investments that offer more growth potential.
- Try not to let your funds dip below the minimum balance to earn dividends. The primary advantage of having a high-dividend savings account is that you can earn money on your savings. If your account balance is too low, you may lose out.
- Consider moving some of your earnings into higher-yield investments. For example, you might withdraw money above and beyond your emergency fund to buy stock or to purchase a term share certificate.
Used properly, a credit union high-yield savings account can be the best vehicle to maximize your savings while still having easy access to your money when you need it.
Are You Ready to Open a High-Yield Savings Account?
Whether you already have an emergency savings fund or you want to start one, a high-yield savings account can help you take advantage of compound interest. The tips we’ve included here will help you make the most of your account.
Are you in search of a high-yield account that pays generous dividends? Leaders Credit Union is here to help! Click here to learn more and open an account.
