Why Now Is a Good Time to Open a High-Yield Savings Account
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Fast Facts
Higher Interest Rates:
Earn more on savings.
Inflation Hedge:
Counteracts rising costs.
Economic Uncertainty:
Safe place for funds.
FDIC Insurance:
Accelerates goal achievement.
Are you tired of the low-interest rates and fees of a traditional bank account? Fortunately, plenty of banks will give you better interest rates for your money. There’s never been a better time to open a high-yield savings account than now, when times are highly uncertain, and you have to be prepared for the unexpected.
Unlike traditional savings accounts, a high-yield savings account offers the benefit of higher interest rates, which means your money will grow faster without taking any unnecessary risks. It is the perfect place to park your emergency funds, the money for your large expenses, or both short-term and long-term financial goals that you may have currently sitting in your deposit accounts.
In this article
What is a high-yield savings account?
When saving money, most people think of two things: finding ways to save more and earn a higher interest rate on their savings. A high-yield savings account can help you do both of those things.
A high-yield savings account offers an annual percentage yield, or APY, which tends to be higher than the interest rate provided by standard savings accounts. The rates on these accounts tend to be up to 20 times higher than the national average for standard savings accounts.
The higher rates are also because high-yield savings accounts are sometimes offered by FDIC-insured online banks, which don't have brick-and-mortar stores and end up saving major money on rent, which is then passed on to their customers through a high yield.
However, opening a high-yield savings account is not always easy. They often require you to meet certain qualifications, such as having an active checking account or being 18 years old. The interest earnings may also differ for members with direct and without direct deposits. These accounts are designed to encourage saving, so there may be more restrictions on accessing your money, unlike money market accounts, which also offer some checking account features.
Four reasons to get a high-yield savings account
1. High-yield savings accounts are a great way to save for the future
If you're considering taking a dream vacation in the next six months or are looking to save up for a home repair, earning more in a high-yield savings account can help you cover these costs. You may also find it easier to keep track of your financial goals by placing your savings in a dedicated account.
2. High interest rates
High-yield savings accounts generally have a much higher interest rate than the national average. Although the rates can fluctuate frequently, the banks and credit unions will continue raising the APYs they offer on savings accounts to follow rate hikes by the Federal Reserve and keep up with their competition.
3. No penalties on fund withdrawals
Financial institutions allow high-yield savings account holders to withdraw or transfer money out of their account up to six times per month without requiring them to pay a penalty fee or risk having their account closed. While federal rules restricting withdrawals were suspended, you may find that some banks still have a limit on withdrawals.
4. Your money is always safe
Online banks offering high-yield savings accounts are insured by the Federal Deposit Insurance Corporation, which means you will not lose any of your money if the provider goes bankrupt. The money kept in the account will be protected up to the legal limits.
- Unlock Up to 4.31% APY**
- Combine Freedom Checking with Portfolio Savings to boost your savings APY by up to 0.20%.**
- Fewer fees, faster transactions. Plus, earn 2.00% APY* on your checking account.
- Move money instantly between your Portfolio Savings and Freedom Checking accounts.
- Skip the monthly maintenance fees and minimum deposit requirements.
What to consider before opening a high-yield savings account?
APY
The APY is the amount of money you actually stand to earn in a year on an account that pays interest. APY adds compound interest to your interest rate to show how much you’ll gain as your money grows. The more often interest is compounded, the higher the APY will be.
Account fees
Some banks charge monthly maintenance fees and minimum deposit fees. You need to avoid accounts that charge fees or maintain a balance to save yourself from paying extra charges. You may need to search for an account that doesn’t charge fees.
Initial deposit
To open a high-yield savings account, you will need to deposit a certain amount of money. Some banks allow you to open an account without money and deposit money later. This is helpful if you are just earning and saving money for the first time.
Minimum balance
Banks usually reward you with a higher APY for a higher balance in your account or charge you a fee for not meeting the minimum requirement. It is important you do your research to compare minimum balance requirements to make sure you can deposit the right amount of money to earn a good APY and avoid any fees.
Compounding frequency
The bank you choose may compound interest daily, monthly, quarterly, or annual, depending on your account type. Choosing a bank that compounds interest more frequently allows you to grow your savings rapidly with a high-yield savings account.
When should you consider opening a high-yield savings account?
You may need to start defining your savings goals before opening an account. Perhaps you’re considering opening a high-yield savings account to build an emergency fund to help you rebound from unexpected expenses like car repair, home damage, medical bills, or more serious setbacks.
The account could also help you save up to buy a house sometime soon or a new car. Perhaps you’re expecting a baby or have child expenses to care for, so a savings account can help you gear up for these costs well ahead of time.
U.S. banks offering high-yield savings account
Choosing a high-yield savings account is a very personal decision and can depend on many factors, such as where you live, your banking needs, and how much money you have. The best bank account for someone living in the suburbs may not be the best option for someone residing in a city with more complicated banking needs.
There are many different types of bank accounts, so it is important to know what you want before choosing one. Below are a few US banks offering some of the best high-yield savings accounts:
Ally Financial
This online-only bank is currently offering APY. The interest is compounded daily, meaning you’ll make more money than monthly or quarterly accounts. Ally Financial is ideal for people looking for competitive rates and minimal fees and those who don't require cash deposits or in-person services.
Pros
- No monthly maintenance fees or minimum balances on savings.
- Uses buckets to organize your money and visualize your savings.
- A consistently above-average interest rate on savings.
- No overdraft fees.
Cons
- No cash deposit service.
- No branch or ATM access.
Read a full review on Ally Financial.
Citibank
Another online bank that doesn’t require you to pay monthly maintenance fees while offering competitive interest rates. Citibank is perfect for those looking to grow their savings faster, with an interest compounded daily. It offers APY, with no minimum deposit to open an account.
Pros
- One of the highest interest rates on savings accounts.
- Provides up to $30 in monthly reimbursements for ATM fees.
- No monthly service charges.
Cons
- No ATM network.
- No physical branches.
Capital One
The 360 Performance Savings account by Capital One currently offers APY, with no minimum balance requirements and no monthly or maintenance fees, allowing you to keep what you earn. There is also no minimum to open and keep your high-yield online savings account.
Pros
- Easy transfers between linked Capital One accounts or external bank accounts.
- You can create multiple Performance Savings accounts for each of your financial goals.
- No monthly service charges.
- The bank has a network of physical branch locations.
Cons
- Excessive transactions may incur a fee or your account may close
- A $35 fee each time you overdraft
Read a full review on Capital One.
American Express
With American Express, your high-yield savings account can earn APY without any monthly fees or minimum balance requirements. The account is easy to use, has round-the-clock customer service, and gives holders greater access to their money should they need it, with multiple free withdrawals or monthly transfers.
Pros
- No minimums or monthly fees.
- No monthly fees.
- 24/7 customer service.
- Up to nine free withdrawals or transfers per statement cycle.
Cons
- No ATM access or card.
- You can’t deposit a check via the mobile app.
- Unlock Up to 4.31% APY**
- Combine Freedom Checking with Portfolio Savings to boost your savings APY by up to 0.20%.**
- Fewer fees, faster transactions. Plus, earn 2.00% APY* on your checking account.
- Move money instantly between your Portfolio Savings and Freedom Checking accounts.
- Skip the monthly maintenance fees and minimum deposit requirements.
FAQs
Are high-yield savings accounts available for minors?
You can only apply for an account if you are 18 or older.
How often can you withdraw from a high-yield savings account?
According to federal law, high-yield savings accounts allow you to withdraw or transfer your cash out of your account up to six times per month without paying any fees.
Do I need to pay tax on a high-yield account?
Interest on high-yield savings accounts is subject to ordinary income tax. You must report savings interest on your tax return for any account that earned more than $10.
The bottom line
Saving money is about making smart choices and setting yourself up for future success, so consider a high-yield savings account as a supercharger for your savings, making them a great option for you to build a fund for emergencies, vacations, or other future needs. Remember that the FDIC should insure the account provider you choose, not charge you monthly fees if you have insufficient funds, and offer you a better interest rate than it does on traditional bank accounts.
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Writer
Aimen Hakim is a business writer with over six years of experience covering the financial, global markets and real estate industries. In her off time she likes to paint and photograph.
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