What Is a High-Yield Savings Account?
Written by Dayana Yochim
Edited by Carolyn Kimball
Fact-checked by Andrea Coombes
A high-yield savings account is nearly identical to a regular savings account, with one big difference: the interest rate. You can earn much, much more — seven to 12 times more — in a high-interest savings account than you can settling for the zero-point-unimpressive percent APY you get from a traditional savings account.
Quick take: Thanks to their growing availability, high APYs (3%-5%), and seamless tech that allows easy transfers to and from accounts at other financial institutions, high-yield savings accounts have become a smart alternative for consumers who want to ditch the traditional checking/savings account banking twofer and move their savings somewhere a more profitable.
Tell me more! High-yield savings accounts share many of the features of a regular savings accounts:
- Account management tools (to track your savings/earnings). These tools are mainly online or mobile-accessible.
- Secure transactions to move money in and out of your account to another linked bank account. Some provide ATM card access.
- Automated saving features to help you build your cash stash.
- FDIC insurance against loss if the bank goes belly-up.
Although a few big bricks-and-mortar banks offer high-yield savings accounts, the most competitive interest rates are offered by online-only financial institutions because they save money by eschewing pricey things like office space and fax paper.
But is my money safe?
A high-yield savings account is a risk-free place for your savings. We alluded to this above, but like traditional savings and checking accounts, high-yield savings accounts are insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). TL;DR: You’re covered against loss due to bank failure on balances up to $250,000 per depositor, per insured bank, per ownership category.
One more thing: Bear in mind that that alluring APY is variable; it can (and will) fluctuate over time based on the federal funds rate. You may also be limited to six withdrawals per month without penalty. Still, you’re getting a much higher interest rate than you would with traditional savings and checking accounts.
Bottom line: A high-yield savings account (also called a high-interest savings account) is like a glowed-up standard savings account, and just as easy to open (see these step-by-step instructions). The biggest differences are that these accounts exist primarily online or through a mobile app. The low overhead is a big reason why you can earn up to 12 times more in interest in a high-yield savings account versus a traditional savings account.
There’s more!
How Do You Open a High-Yield Savings Account?
About the Editorial Team
Dayana Yochim has been writing (articles, books, podcasts, stirring speeches) about personal finance and investing for more than two decades, focusing on bringing clarity and the occasional comedic aside to what is often a murky, humorless topic. She’s written for NerdWallet, The Motley Fool, HerMoney.com, Woman’s Day, Forbes, Newsweek and others, and been a guest expert on "Today," "Good Morning America," CNN, NPR and wherever they’ll hand her a mic.
Carolyn Kimball is Managing Editor for Reink Media Group and the lead editor for content on investor.com. Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.
Andrea Coombes has 20+ years of experience helping people reach their financial goals. Her personal finance articles have appeared in the Wall Street Journal, USA Today, MarketWatch, Forbes, and other publications, and she's shared her expertise on CBS, NPR, "Marketplace," and more. She's been a financial coach and certified consumer credit counselor, and is working on becoming a Certified Financial Planner. She knows that owning pets isn't necessarily the best financial decision; her dog and two cats would argue this point.
