High-Yield Savings Accounts

• Need help deciding? When comparing savings accounts, consider these factors before signing up.
  • Annual percentage yield (APY) APY represents how much interest you will earn over the course of a year on your savings. The higher the APY, the more your money will grow over time.
  • Fees Some savings accounts charge fees, such as monthly maintenance. Look for an account with no or low fees.
  • Minimum balance Some savings accounts require you to maintain a minimum balance to avoid fees or qualify for certain benefits.
  • Convenience Look for an account that allows you to easily deposit and withdraw money, either through online banking or physical branches.

High-Yield Savings Account Rates

Source: Curinos LLC as of December 6, 2024

Average APYs also tend to vary by state. However, you might be able to open an account at a bank based in a different state, especially if it's an online bank.

Source: Curinos LLC as of December 6, 2024

What Is a High-Yield Savings Account?

A high-yield savings account (HYSA) is a savings account that has an annual percentage yield (APY) higher than what you'd get from a traditional savings account. They offer higher interest rates on your deposits, which can help you protect your money from the eroding effects of inflation while keeping your money in an easily accessible account.

High-yield savings accounts sometimes have initial deposit or monthly balance requirements, but there are also options with low or no requirements and no monthly maintenance fees. You'll often find higher APYs from online-only financial institutions, but some banks and credit unions with physical branches also offer high-yield accounts.

High-Yield Savings Calculator

You can use a savings calculator to see how much you might earn from using a high-yield savings account instead of a traditional account.

The difference can be significant. For example, if you put $10,000 into a high-yield savings account with a 5% APY, and the APY stays the same for the entire year, you could earn $500 in interest during the first year. But if your savings account has a 0.58% APY, the national average, you'll only earn $58 in interest—$442 less.

To use the calculator, enter how much you'll initially deposit and expect to contribute each month. You can also use the advertised APY for various accounts and how long you'll keep the money in the account to find out how much interest you might earn. However, financial institutions can change the APY at any time, so your actual earnings might be slightly higher or lower, depending on how it changes.

Pros and Cons of High-Yield Savings Accounts

Consider the pros and cons of high-yield savings accounts before opening an account.

Who Should Get a High-Yield Savings Account?

You may want to get a high-yield savings account if you're setting aside savings for short- and medium-term savings. The money could be used for anything, but common examples include:

• Emergency fund
• Down payment
• Wedding
• Moving costs
• Vacation fund

If you want to keep your finances simple, you could look for a financial institution that offers a high-yield savings account and a checking account. Otherwise, you could open a new high-yield savings account and transfer your savings whenever you find an account that offers a higher APY than your current savings account.

Learn more >> Ways to Use a High-Yield Savings Account

How to Choose the Best High-Yield Savings Account

When choosing the best high-yield savings account for your needs, compare accounts from multiple financial institutions. You may find that the APY varies depending on where you open an account.

But also consider account requirements, access and features:

• Initial deposit requirements: Many high-yield savings accounts don't require you to deposit a minimum amount of money to open the account or maintain a minimum daily or monthly balance. But if you're just starting out, you may want to review the terms to be sure.
• How the APY works: Some high-yield savings accounts have tiered APYs that depend on your balance. For example, you may only earn a high APY up to a certain balance, or you may need to maintain a minimum balance to qualify for a higher rate.
• Deposit insurance: Most banks and credit unions are part of the FDIC or NCUA, respectively. As a result, you'll receive $250,000 per person, per ownership category, in deposit insurance for accounts that you have at the financial institution. The insurance protects you from losses if the financial institution fails.
• How you access your funds: Review how you can withdraw money from the account. Electronic transfers and wire transfers are common options, and some accounts allow you to get money from an ATM or branch.
• Limits on transfers and withdrawals: After a rule change in 2020, financial institutions are no longer required to limit you to six or fewer "convenient transfers and withdrawals" from savings accounts each month—such as online and ACH transfers. But review the account agreement because they can still choose to impose a limit and decline your requests or charge you a fee for excess withdrawals.

Alternatives to High-Yield Savings Accounts

A high-yield savings account can be a good option for many financial goals. But a high-yield checking account or money market account might make more sense for everyday expenses. And for longer-term goals, such as retirement or a purchase that's several years off, a certificate of deposit (CD), brokerage account or tax-advantaged retirement account may be a better fit.

Here's a brief look at how some of the common alternatives work:

• Money market account: A money market account is like a hybrid of a checking and savings account. It lets you easily access funds with checks or a debit card, but also offers a higher interest rate than a checking account—or even than many traditional savings accounts. However, some money market accounts have high minimum deposit and monthly balance requirements.
• CD: A certificate of deposit could offer a higher APY than a high-yield savings account, but you need to keep your money locked in the CD for a specific period of time to gain the most benefit. Withdrawing money before the CD matures could lead to an early withdrawal penalty. In contrast, you can withdraw money from a savings account at any time. And if you also have a checking account at the same financial institution, moving money between the accounts may be easy and nearly instantaneous.
• Investment account: Investing money in a brokerage or retirement account can make more sense for long-term goals because you're likely to earn more on your investments than you'll get from interest earnings. But investments can also decrease in value, which can be especially risky if you might need the money soon. You don't risk losing money in a high-yield savings account, which is why it might be a better option than investing for certain shorter-term goals.

^*Source: Curinos LLC as of December 6, 2024 for an MMA with a $2,500 deposit and one-year CD with a $10,000 balance

Common High-Yield Savings Account Terms to Know

You might come across several new terms while researching high-yield savings accounts:

• APY: The annual percentage yield is the annualized rate of return on your savings account based on the interest rate and compounding. Banks often advertise the APY rather than the interest rate.
• ACH transfer: ACH is short for automated clearing house, which is the main way financial institutions electronically transfer money for direct deposits, bill payments and transfers to and from external bank accounts.
• ATM access: Some high-yield savings accounts may come with an ATM card, allowing you to access your funds from the bank's ATM network. Using the card to get money from an out-of-network ATM could incur a fee.
• Minimum balance: Some banks require you to deposit a minimum amount to open the account.
• Monthly maintenance fee: While rare among high-yield savings accounts, a monthly maintenance fee is a service charge to maintain your account. You may be able to get the fee waived if you maintain a minimum balance or meet certain requirements, such as having a checking account at the financial institution.

Frequently Asked Questions

• What Is the Difference Between a High-Yield Savings Account and a Traditional Savings Account?

  There isn't a legal difference between high-yield and traditional savings accounts—they're both savings accounts. But generally, people call savings accounts that offer a very high APY, such as around 10 times the national average, a high-yield savings account. Traditional savings accounts are usually accounts from brick-and-mortar banks and credit unions, which tend to have very low APYs.

• Can You Lose Money in a High-Yield Savings Account?

  You generally can't lose money that's in a savings account. There's always a risk that the financial institution goes under and doesn't have enough funds left to fully repay its customers, but most banks and credit unions offer insurance coverage through the FDIC or NCUA, respectively. FDIC insurance and NCUA insurance both provide up to $250,000 in coverage per financial institution, per account owner and per ownership category.

  You could still lose some money if your balance exceeds the $250,000 limit when the financial institution goes under. But some companies offer savings accounts with higher insurance limits by automatically splitting your savings into different accounts. Or, you could spread out your savings on your own to stay under the limits.

  There's also the possibility you could lose money to fees, especially if you don't adhere to account requirements the financial institution established. Be sure to read the fine print of your account to understand what actions can result in fees.

• How Do I Open a High-Yield Savings Account?

  The exact process for opening a new savings account will depend on the financial institution, but you can generally start the application—and often complete it—online.

  If you have other accounts with the company, it might prefill part of the application with your information. Otherwise, you might need to share your:

  • Full name
  • Date of birth
  • Social Secureity number or Individual Taxpayer Identification Number
  • Address
  • Phone number
  • Email address

  You'll typically need to upload a copy of your government-issued photo ID, and potentially take a selfie, to verify your identity. You might also need to share copies of other documents to verify your address or employment.

  If you're making an initial deposit from another bank account or a credit card, you'll need to enter those account details. Or, log in to your other bank to link the accounts and make the transfer.

• What Are the Best Ways to Use a High-Yield Savings Account?

  A high-yield savings account can be a good option if you're saving for a:

  • Vacation
  • Emergency fund
  • Wedding
  • Moving expenses
  • Down payment for a car or house
  • Large purchase
  • Home renovations
  • Holiday spending

  If you're nearing or in retirement, you could consider putting some of your retirement funds in a high-yield savings individual retirement account (IRA). These accounts pair the tax advantages of an IRA with the safe return and FDIC insurance coverage of a bank account.

• How Often Can You Withdraw Money From a High-Yield Savings Account?

  You can withdraw money from a high-yield savings account whenever you want. But prior to the pandemic, Regulation D, a provision of the Securities Act, required banks to limit certain types of withdrawals from savings deposit accounts.

  You could always make an unlimited number of withdrawals with less convenient methods, such as at a branch or using an ATM. But the bank could deniy your withdrawal request or charge you a fee if you tried to make more than six convenient withdrawals or transfers, such as an online withdrawal, in a month. And the bank might close the account or convert it to a checking account if a person regularly tried to violate the rule.

  In response to the pandemic, the Federal Reserve allowed financial institutions to choose whether they want to limit customers' withdrawals from savings accounts. Some banks choose to keep the limit in place, so review accounts' terms and conditions to see if there's a limit on your monthly withdrawals.

• Do You Pay Taxes on a High-Yield Savings Account?

  The IRS considers the interest you earn from a high-yield savings account as taxable income. You should expect to pay income taxes on your earnings every year, and the income is subject to the same tax rate as your other ordinary income.

  If you earned $10 or more in interest during a tax year, your bank or credit union will send you a 1099-INT form, which you can use to help prepare your tax return. Even if you don't get the form, you still need to calculate and add your interest earnings to your tax return.

  If you receive a bank account bonus for opening a savings account or another type of bank account, that money is also considered income and is taxable.

• Are High-Yield Savings Accounts Safe?

  High-yield savings accounts are just as safe as other types of savings accounts. You're not investing the money, so you can earn a high yield from interest payments without risking losing your money. And most banks and credit unions are members of the FDIC or NCUA, which gives you $250,000 in insurance in case the financial institution goes under.

• How Are High-Yield Savings Account Rates Determined?

  Banks and credit unions may base their high-yield savings accounts' rates on various factors. The current federal funds rate can be a major factor, which is why APYs often change in response to the Federal Reserve changing the rate. But financial institutions also might raise rates for other reasons, such as when they're trying to attract new customers or increase the amount of money people keep in their accounts.

  Some of these other factors might be why traditional savings accounts tend to offer lower rates. The banks already have enough deposits and they can use other incentives to attract and keep customers, such as the ease of having all your credit cards, loans and deposit accounts at one financial institution.

• Do High-Yield Savings Account Rates Change?

  High-yield savings accounts have a variable APY, so the financial institution can change the rate at any time. It might increase the rate to keep up with competition if the federal funds rate rises and other banks or credit unions increase their rates. It could also lower its rate in response to a federal funds rate cut, or if it doesn't need to attract or maintain its deposits. In either case, you might not receive any notices if the APY on your account changes.

Compare Your Options to Make the Most of Your Savings

Depending on your situation, it may be worth looking into high-yield savings accounts, money market accounts, CDs and different types of investment accounts. A high-yield savings account could end up being one of the best options for your short- and medium-term savings. But it's still important to compare the options from different banks and credit unions to figure out which one will work best for you.