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While you may encounter some fees with your traditional checking and savings accounts, you'll come across different fees with certificate of deposit (CD) accounts, money market accounts (MMAs) and high-yield savings accounts (HYSAs).
For example, MMAs and HYSAs sometimes charge monthly maintenance fees or a fee if you don't keep a required minimum balance. CDs often have early withdrawal penalties for removing money before the maturity date. Here's what you need to know about common fees on these high-yield accounts and how to avoid them.
What Fees Are Common With HYSAs, CDs and MMAs?
Know that downsides of accounts shouldn't solely be judged by fees, but also opportunity costs. When you have money tied up in a long-term CD or a money market account that requires a high minimum balance, for example, you could be missing out on investing it elsewhere where you might see more growth, like the stock market or real estate (if you're looking for a long-term investment).
HYSAs, CDs and MMAs differ from these types of investments in that they're insured up to a certain limit as long as you hold the account at a bank that's a member of the Federal Deposit Insurance Corp. (FDIC) or a credit union that belongs to the National Credit Union Administration (NCUA).
These accounts' low-risk nature may be worth the security and guaranteed returns—as long as you understand the trade-offs and the following common fees.
High-Yield Savings Account Fees
- Overdraft fees: If your high-yield savings account balance dips below zero after a transfer or withdrawal and you don't have overdraft protection, you might be charged an overdraft fee—as much as $30 per transaction.
- Minimum balance fees: Some HYSAs require you to maintain a minimum balance at all times, and failure to do so can result in fees or a reduced interest rate.
- Maintenance fees: While not common, some HYSAs charge monthly maintenance fees, from a few dollars to $25 per month. This might be waived if you meet a minimum balance. Additionally, if you don't have any account activity for six months, you might be assessed an inactivity fee from $5 to $20.
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Money Market Account Fees
- Minimum balance fee or rate decrease: In exchange for competitive interest rates, some MMAs also require minimum balances. Failing to maintain that minimum could cost you in fees. If your annual percentage yield (APY) depends on maintaining a certain minimum balance, you may also get knocked down to a lower rate, which isn't a fee but reduces your earning potential.
- Maintenance fee: Some MMAs charge ongoing monthly maintenance fees for simply having the account. However, it might be waived if you meet a minimum balance.
- Excessive withdrawals: Like some savings accounts, some MMAs limit withdrawals or transfers to six per month. Federal laws no longer have this restriction, so some financial institutions no longer impose withdrawal limits on MMAs. Others still charge fees if you exceed six withdrawals per statement, often around $10 to $15 per transaction.
- Overdraft fees: If you try to transfer funds or withdraw more money from an ATM than you have in your account, and you don't have overdraft protection, expect a fee.
- Early withdrawal penalty: When you take out a CD, you agree to lock up your money for a set amount of time—often between a few months and a few years—in exchange for earning a higher APY. If you withdraw your money before the maturity date on your account, you may be charged an early withdrawal fee that is often expressed in a number of months' worth of interest earnings. An early withdrawal penalty can also apply if you let the CD roll over into a new term after maturity and then decide to take the money out.
How Can You Avoid Fees for High-Yield Banking?
Now that you know some of the common fees, many are avoidable if you know how to do the following:
- Open the right account type. While HYSAs, CDs and MMAs all earn far more interest than a traditional savings account, they only pay off if you open an account that makes sense for you. If you don't have a large amount to set aside, it may not be practical to open a MMA or HYSA that requires a steep minimum balance. If you can afford to stash a chunk of change somewhere but can't predict when you'll need it, a CD isn't ideal since most issue fees for early withdrawal. You can reduce or avoid fees when you choose an account well-suited to your situation and goals.
- Comparison shop. Rates, terms and fees vary across financial institutions, so compare more than just interest. Fees at credit unions tend to be lower than banks, but some newer online-only banks with less overhead also have fewer fees and higher APYs.
- Read the fine print. It's worth taking the time to read the terms before opening a new account so you can understand and avoid fees. You don't want to be taken off guard by a monthly maintenance fee because you can't meet a minimum balance, or get hit with fees because you didn't know you couldn't exceed six monthly withdrawals.
- Consider trade-offs beyond fees. Say you like the idea of a CD, but not the long-term commitment. You could open a no-penalty CD without fees for early withdrawals—but in exchange, your yields may be lower. Look at how much you would lose in exchange for more flexibility and consider if it's worth it.
Which Type of Account Is Right for You?
As you consider the best type of account, here are factors and needs to ponder:
- How much can you put aside immediately? Some MMAs require minimum opening deposits and ongoing balances and, less commonly, so do some HYSAs. CDs necessitate larger initial deposits. If you already have money set aside, no problem. But if your savings are slim, it may be best to go with an HYSA or MMA—and one without minimum deposit or balance requirements.
- How much liquidity do you need? CDs have the least liquidity since funds are usually locked up for the term. HYSAs have no time commitment, though accessing your money may require waiting for a transfer to your normal checking account before you can access it. MMAs offer the most liquidity of the three since they're savings accounts with checking-like features, providing access to funds via debit cards or checkbooks. Just know that some banks limit transactions on HYSAs and MMAs to six per month, and exceeding this may result in fees.
- How important is interest? Also consider the interest yield. CDs typically have slightly higher interest rates than HYSAs or MMAs in exchange for their limitations, and you might score a better rate for a larger deposit or a longer term. If interest is your sole focus, CDs may be ideal. If you need more flexibility, you might earn slightly less with HYSAs and MMAs, but they often have competitive interest rates between those categories. Just compare benefits and fees carefully.
The Bottom Line
These three types of high-yield savings accounts can be hugely beneficial, especially when interest rates are generous. Your earnings will go even further if you open an account that's best-matched for your needs and goals—and if you're aware of the fees and know how to avoid them.