How To Find The Best High-Yield Savings Account For You

Like a traditional savings account, a high-yield savings account offers a helpful place to sock away cash for future needs or emergencies. But as compared with standard-issue accounts, it also pays you significantly more in interest on any sums that you’ve managed to stash away. Noting this, an HYSA can help you save more rapidly for any financial goal or large purchase while still maintaining everyday access to your assets.

That said, let’s take a closer look at how high-yield savings accounts work, what the best high interest savings accounts to consider are, and how this product can help you build and grow your nest egg more rapidly.

What Is A High-Yield Savings Account?

A HYSA operates similarly to a typical savings account that your bank, credit union, or online financial technology (fintech) provider offers. However, it also typically pays significantly more in terms of interest – helpful for anyone that’s looking to grow their savings. In effect, by earning more interest on money at the enhanced levels that a high-yield savings account (sometimes also called a high-interest savings account) provides, you can more readily accumulate funds.

Note that as a general rule of thumb, the best high-interest savings accounts also typically come with no minimum balance requirements, no or low initial deposit requirements, and no monthly maintenance fees attached. To help protect your investments, they’re also insured by the Federal Deposit Insurance Corporation (FDIC). Be advised though that financial providers that offer HYSAs operate under different individual terms and conditions, making it essential to read the fine print before you apply and sign up for one.

High-Yield Savings Account Vs. Traditional Savings Account

While the annual percentage yield (APY) could hover around 0.5% for a standard savings account, the APY on a high-yield savings account could top 4.5% or higher depending on the institution.

To get a better sense of performance in practice here, imagine that you open a savings account with $1,000 in it, and make regular contributions of $50 a month. If it were a traditional savings account, you’d net total earnings of $6.37 for the year at a 0.5% APY. On the flip side, with HYSA boasting a 4.5% APY, your account could net over $57 in interest over a year.

As you can see, utilizing an HYSA to build your savings can help you quickly increase your earnings and put more money in your pocket at the end of the day.

How Do High-Yield Savings Accounts Work?

HYSAs are typically offered by banks, credit unions, online fintech or neobank companies, and other financial service providers. As previously noted, these accounts pay a higher interest rate than you’ll earn on a traditional savings account, although in both cases these earnings are achieved through the magic of compound interest.

Put simply, compound interest provides a means through which your account can grow on a regular basis by leveraging not only the power of principal (amount deposited) but also any total interest that’s accumulated on the account. While it may seem slight at first, over time, this compounding or multiplying effect can greatly increase your earnings – and accelerate the pace at which they accrue.

That said, there are some potential variables to be aware of here as well. Various financial institutions may charge you fees for their associated services (which can vary by individual provider and account). In fact, some of the high-yield savings accounts that boast the highest interest rates also tend to come with the most fees attached to them.

Typical sorts of fees and charges that you might expect to encounter or incur could include:

• Monthly maintenance fee: A regular charge applied every month, though certain financial providers may waive the charge if you meet select criteria like maintaining a specific monthly balance within your account.
• Excessive withdrawal fee: Like other savings accounts, an HYSA can come with a maximum number of monthly transfers or withdrawals. Exceed this threshold, and you may be charged for each individual transaction that occurs beyond your assigned limit.
• Minimum balance fee: You may be charged a fee if you fail to maintain a minimum balance amount in your account, depending on the rules and terms of the financial institution. That said, certain providers may waive the charge if you keep an average overall minimum balance on-hand for the year or offer a one-time waiver in the case of an individual circumstance.
• Account closure fee: If you wish to close out your account, you may be charged an additional fee by your service provider – especially if you close the account within a certain period after its initial opening.

All that being said, it’s important to review and familiarize yourself with the terms and conditions of any specific HYSA before signing up for it.

Also bear in mind: Given that many providers offer high-yield savings accounts, you may find that doing a little research here can help you avoid certain fees and operating terms that don’t fit your needs.

Pros Of HYSAs

There are many perks and benefits to investing in a high-yield savings account, as you might imagine.

Higher Interest Earnings

A high-yield savings account can be considerably helpful if you’re looking to quickly grow your savings and put away more money for big purchases, personal financial goals, or any emergency needs that may arise. The high annual percentage yield offered can effectively accelerate and compound earnings over time – making it far easier to reach savings milestones and amass emergency funds as needed.

Better yet, the more money that you contribute to your account and the longer earnings have to grow and compound, the more cash that you’ll earn in the end – making a HYSA a gift that truly keeps on giving. Starting with even a small amount of savings can help you achieve your financial goals more rapidly than with a traditional savings account.

Federally Insured

Most HYSAs (though not all) are FDIC insured to help safeguard account holders against the loss of their funds. Long story short: If you place money in an insured high-yield savings account, it will be federally insured by the government to up to $250,000 in the event of the banking institution’s financial collapse.

Easy To Own

On the whole, most high-yield savings accounts that you can sign up for tend to be quite liquid. That means that you can access funds and take money out of the account quickly and with a minimum of fuss if needed.

Also worth noting is that most financial providers (even traditional brick-and-mortar banks and credit unions) now offer online access and mobile applications through which to manage your money. Whether you’ve signed up for an HYSA through a fintech or local bank branch, financial institutions of all kinds typically offer digital or app-based solutions so you can quickly access your funds.

Cons Of HYSAs

Of course, anyone thinking about where to invest their money would do well to be aware that there are also some potential downsides to working with HYSAs.

Funds May Be Hard To Transfer

With so many online savings accounts now popular, it bears noting that not all come with physical branches attached that you can stop by to deposit payments into or withdraw funds from at will. Rather, you may be confined to using predetermined ATMs or banking centers. Some banks may also impose transfer limits on transactions so that account holders have to plan ahead to make any needed transfers.

Also keep in mind that you won’t typically enjoy debit card access as part with these accounts – rather, you’ll need an additional checking account or money market account to make credit card or debit purchases.

Require High Deposits On Minimum Balances

Certain financial services providers may require you to make high initial deposits in order to open select accounts. Alternately, they may require you to maintain a high minimum monthly or average balance to continue to receive a high APY.

Be sure to research and review the terms of any HYSA prior to signing on the dotted line. With so many companies now competing for your business, you may be able to secure a better offer that ties up less of your liquid funds.

Rates Can Change

Don’t forget that the interest rate that is attached to any given high-yield savings account can potentially fluctuate as well. That’s because HYSA accounts don’t come with a fixed interest rate attached to them. As a result, while you may enjoy the benefits of a high interest rate at the time your account is opened, it could possibly lower (leading to less savings and less rapid account growth) at a future date.

Other Financial Products May Be More Competitive

High-yield savings accounts may also present a slower overall rate of growth as compared with alternate, more high-risk financial products. It’s true: A HYSA does grow faster than a traditional savings account. But in practice, you may find that it grows more slowly than other financial investments like stocks or CDs. If you’re seeking to grow your savings as fast as possible, you may find that other options outperform the gains presented by high-interest savings account products.

At A Glance: Pros And Cons Of High-Yield Savings Accounts

How To Choose The Best High-Interest Savings Account For You

It’s important to shop around for high-yield savings accounts, as myriad options are available, and no two providers offer the same terms and conditions. To ensure that you’re getting the best possible deal, especially if you plan on having multiple bank accounts, you’ll want to:

1. Consider What You’re Saving For

The type of financial need that you’re saving up for is critical to take into consideration, as it could very well impact which financial institution that you elect to open an account with. For instance: If you’re seeking an HYSA to house your emergency savings in, you’ll want to sign up for an account that is easy to transfer money out of or one with a no-fee checking account associated with it. Likewise, if you don’t plan on touching the money for several years (e.g. in the event that you’re saving up for a house or college), then you may wish to pick an account with lower operating costs and higher upfront earnings.

2. Shop Around

As you compare HYSA options, don’t just look at interest rates and potential payouts. Also think about total cost of ownership, any minimum balances or deposits required, and what fees may be attached to the account as well. As part of your homework, also make a point to consider how frequently your money will compound (daily, monthly, etc.).

3. Research Requirements

It’s common for many high-yield savings accounts to come with certain requirements attached, like a minimum initial deposit or ongoing monthly balance that must be maintained. Similarly, you may also be subject to certain limits on transfers from the account, with any transactions over these limits subject to additional fees and charges. You’ll also want to know what deposit and withdrawal facilities are available, such as nearby ATMs or bank branches, in the event that you need additional support or customer service.

4. Plan How You’ll Access Your Savings

Noting the above, you’ll further want to create a plan for how you can access the money in your high-yield savings account in the event of an emergency. It’s especially important to understand whether you can move money between your other accounts and banking institutions, as transfers are sometimes limited or not possible between banks.

5. Open An Account

FAQs About High-Yield Savings Accounts

Why are most high-yield savings accounts offered by online banks?

Online providers such as fintechs and neobanks don’t typically have as much overhead or operating costs as traditional banks and credit unions. As a result, they’re generally able to offer account holders higher returns on their investments.

Is a high-yield savings account worth it?

It all depends on what you’re saving up for, how quickly you need access to your money, and how easy savings are to deposit and withdraw. An HYSA often makes a great alternative to a traditional savings account, and comes with low risk as it’s FDIC-insured. But if you need frequent or rapid access to money, or need to grow your savings as fast as possible, other financial products may make more sense for you.

How do I deposit money into an online HYSA?

Generally, you can do so by means of an electronic funds transfer (EFT) from another financial provider. Alternately, money can be sent in the form of a direct deposit or mobile check deposit. You may also frequently snail mail a check to the financial provider as well if you’d like, depending on the financial institution. When doing so, it can help to be aware of cash deposit limits.

Is opening a high-yield savings account with a non-banking financial institution safe?

The Bottom Line

A high-yield savings account can be attractive to anyone looking to grow their savings on a regular and recurring basis. That’s because HYSAs pay higher interest rates and APY than traditional savings accounts and can readily boost your earnings thanks to the magic of compound interest.

At the same time, it bears noting that HYSA providers may impose fees, minimum balances, and transaction limits on these accounts. Further, more high-risk investments (such as CDs and bonds) may allow you to grow your money more rapidly if you need to maximize returns over a more accelerated timeline.