You’ve probably heard that you should “save for a rainy day” or that it’s a good idea to stash away three to six months of expenses in an emergency fund. But where you save that money also matters because savings accounts are not all created equal. There is a big difference between traditional and high-yield savings accounts.
High-yield savings accounts can boost the interest you earn on your deposits and get you a bigger return. In this guide, we’ll cover a high-yield savings account and how it works, plus how to find one to help you meet your financial goals.
What is a high-yield savings account?
When you choose a bank, you typically can open a checking and savings account. Your bank may offer a traditional savings account that earns interest on deposits. However, that interest rate is usually fairly low.
In contrast,
high-yield savings accounts offer higher interest rates than standard ones. In fact, high-yield savings account rates are considerably higher than the national average for standard savings accounts.
So think of a high-yield savings account as a turbocharger for your savings. A high-yield savings account is a good option if you want the highest return on your savings deposits.
How interest rates work
The main perk of high-yield savings accounts is that, as implied, offering the highest rates in interest earnings is higher, which means you can earn more on your deposits. Savings rates are called annual percentage yield (APY), the interest you get after a year.
Aside from the APY,
compounding also affects how much you earn. The top high-yield online savings accounts compound daily, meaning you can earn the highest APY on what’s in your account daily. It’s important to note that might not be the case for all banks, and even if you are earning high rates every day, you may only get a payout once a month.
Having one of these accounts, whether through mobile banking or bricks and mortar banks, can offer more competitive savings account interest rates than traditional savings accounts.
What you should know about high-yield savings accounts
High-yield savings accounts are attractive for savers who want their money to work for them. But there are some things to consider as well.
FDIC insured
FDIC stands for Federal Deposit Insurance Corporation (FDIC) and is an agency to protect consumers in the event of bank failure. Many banks, including high-yield savings accounts, are FDIC insured, which protects your deposits up to $250,000. Whether you have a traditional savings account, a high-yield savings account, or a
money market account, you’re insured if the bank is a member of the FDIC.
Annual percentage yield
What makes high-yield savings accounts stand out is their APY. APY represents annual percentage yield, which is how interest is expressed for this account. APY refers to the interest and the return you get in a year.
The APY is much higher than standard savings accounts but can vary among banks.
On top of that, the APY can change at any time. Banks typically follow and adjust their interest rates when the Federal Reserve cuts interest rates. In 2020, interest rates dropped significantly, near zero percent. After that, many high-yield savings accounts also lowered their APY. Of course, that hasn't been the case lately as the Fed raises rates to rein in inflation.
Minimum deposit
Some high-yield savings accounts have a minimum initial deposit to open an account. If you’re just starting to save, you want to look for a new account with no minimum deposit.
Minimum balance
Another thing to look out for is whether the high-yield savings account requires a minimum balance. This is the account balance required to receive a specific benefit, such as not paying a monthly maintenance fee or earning interest on the account.
Convenience
Managing your savings takes some work, so you want to look at how convenient the high-yield savings account is. Does it offer a mobile app? Is it easy to transfer money and access your account? Can you get support if you need it?
Accessibility
Accessibility is something that should be considered when choosing a high-yield savings account. You want to consider how easy it is to access your money. For example, how long will it take if you need to transfer money from your savings account to your checking account?
Fees
You also want to check if any fees are associated with the high-yield savings account. Many of these accounts don’t have fees, but some have monthly maintenance fees. You may avoid some of these fees by keeping a certain balance.
What you can do with a high-yield savings account
You can use a high-yield savings account for a variety of different reasons. For example, you could use the account for:
Saving money for your emergency fund
Putting money aside for a future vacation
Saving for a down payment on a house
A high-yield online savings account is a good place to work on savings goals while earning more interest safely.
Best high-yield savings accounts
If you want to park your money in a high-interest savings account, there is no shortage of banks. Many of the places are online banks that can offer the best rates. Here are the top places you can open a high-yield savings account.
Marcus by Goldman Sachs
Marcus by Goldman Sachs offers an APY of . You will pay zero in fees and can make same-day transfers. There is also no minimum deposit, though you must have a minimum balance of $2,500. The mobile app offers 24/7 access and the convenience of managing your money from your phone.
Discover
Discover, which might be more well-known for its credit card, also offers high-yield savings accounts as a financial product. It offers an APY of , with no minimum deposit requirements. On top of that, there are no monthly maintenance fees.
Ally Bank
Using Ally Bank, you can have different savings buckets to work toward meeting your financial goals. Ally is an attractive option, as there are no monthly maintenance fees or minimums you must maintain. The bank offers an APY of .
Read a full review on Ally Bank.
Vio Bank
Vio Bank has a $100 minimum deposit to open an online high-yield savings account and has no monthly fee. Plus, your interest earns daily so that you can earn interest fast. The bank also offers customer service representatives you can speak to. APY offered is currently at up to .
American Express National Bank
You might know of
American Express credit cards, but their bank offers a high-yield savings account. There are no fees or minimums; according to their site, you can earn APY. You can also speak to someone on the phone 24/7.
Axos
Axos Bank offers a high-yield savings account at APY, and it has no minimum balance requirements and won’t charge you any monthly fee. You need $250 as a minimum deposit to open a bank account. You can even get a debit card by request.
Read a full review on Axos Bank.
Barclays
The Barclays online high-yield savings account has no minimum deposit requirements or monthly maintenance fees. You can connect direct deposit to this account and have 24/7 access to your account. According to their site, the APY is .
Capital One 360
The
Capital One 360 Performance account is a high-yield savings account that can earn APY. The account has no monthly fees, minimum deposits, or minimum balance requirements. The bank has a premium mobile app for saving and includes mobile check deposits.
The bottom line
A high-yield savings account is like a traditional savings account's cooler older brother. It earns you more on your deposits and can be an effective tool to save for your financial goals. There are many financial institutions to consider if you want to start saving, so review the pros and cons and get the most out of your savings.
