What Is a High-Yield Savings Account?
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.
How Do You Open a High-Yield Savings Account?