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How to open a high-yield savings account: 5 smart steps to earning more on your money

Kat Aoki
Updated
How to open a high-yield savings account: 5 smart steps to earning more on your money (pixdeluxe via Getty Images)

Are you looking for a safe place to park your cash while earning a more competitive rate than your typical account? An FDIC-insured high-yield savings account might be the best place right now to grow your savings.

Offering higher interest rates that can pay out up to 10 times the 0.42% national average of a traditional savings account, a high-interest savings account is an ideal way to grow your idle cash faster for building an emergency fund or setting aside money for a major purchase, like a home renovation or family holiday, with virtually no risk. In fact, considering the Federal Reserve's three back-to-back interest rate cuts last year, these supercharged accounts are among the best ways to get ahead of future drops and stay ahead of inflation.

We walk you through the five steps of finding and opening a high-yield savings account, from shopping around for an HYSA that fits your needs to maximizing your account's potential and protecting your savings.

A popular vehicle for saving money, high-yield savings accounts are offered at traditional or national banks, credit unions and online-only financial institutions. But because every account is different, it pays to compare a few key features to make sure you’re getting the best deal for your budget.

Maximize your interest earnings by choosing an HYSA with the highest APY for your initial deposit. Online-only banks and digital accounts tend to offer the highest rates because they don’t have the overhead of brick-and-mortar banks — and they make it easy to manage and move your money by linking to an external account, whether at the same or at a different bank.

However, because HYSAs come with variable rates, keep in mind that APYs can change at any time, based on market conditions and the bank’s discretion. And some advertised rates may be “intro” rates only, so be sure to check the terms and conditions before you transfer your money.

Compound interest is a powerful way to boost your savings by earning interest on both your account balance and any interest you earn along the way. While monthly compounding is common, some banks — including American Express and Ally — compound interest daily on their HYSAs.

While you won’t see much difference with small deposits, the impact of daily compounding on large deposits is more noticeable. It adds up to a higher balance on which you’ll earn continuous compounding.

The best online banks and credit unions won’t require a high minimum opening deposit or balance to earn high APYs.

Many traditional banks come with minimum deposit requirements to open an HYSA or a minimum monthly balance to avoid maintenance and other monthly fees or penalties. These minimums can range anywhere from $25 to $5,000 or more, depending on the account.

Think about how you want to access your money. You can link your digital HYSA to an everyday checking account, allowing for quick transfers when you need to withdraw money. However, some banks offer high-yield money market accounts (MMAs) that offer additional access through debit cards or check writing privileges.

While most HYSAs have no monthly maintenance fees, it’s wise to confirm there aren’t any hidden fees that could eat into your savings. For example, some accounts charge a fee for paper statements, out-of-network ATMs or falling below a stated monthly minimum balance.

Also, while the Federal Reserve has lifted withdrawal limits on savings accounts indefinitely, some traditional savings accounts haven’t yet caught up. Read the account's fine print to make sure you understand how often you can access your money without triggering a penalty (if any). And learn more about common bank fees — and how to avoid them.

Choose a bank that offers user-friendly online and mobile banking platforms and has a solid reputation for customer service. This is especially important if you choose a fully online bank.

You can visit sites like Trustpilot, Reddit and the Better Business Bureau to view unbiased customer reviews and check for consumer alerts.

Dig deeper: High-yield account vs. traditional savings: Why it’s worth the switch

While every institution requires slightly different information, prepare to provide the following personal and financial details before opening an HYSA:

  • Social Security number or Individual Taxpayer Identification Number (ITIN). Some banks allow you to open an HYSA with a permanent residency card or foreign passport, so it's worth asking about if you don't have an SSN or ITIN.

  • Government ID — like a driver's license, state ID or passport to verify your identity. Fewer banks ask for a second form of ID, such as a birth certificate, Social Security card, permanent resident card or a military ID.

  • Utility bill, lease agreement or other document confirming your current residence. Not all banks will require this documentation for proof of address, but it's good to have on hand in case.

  • Routing and account numbers for a linked account. Your linked account is where your initial deposit will be drawn from to complete opening your HYSA.

Most banks will let you apply for an HYSA online — including submitting your application and documents electronically — for faster signup in minutes.

You'll typically follow five general steps for opening an HYSA online:

  1. Go to the bank's website and navigate to the high-interest savings account you’re interested in.

  2. Complete an online application form with your personal information, including your Social Security number or Individual Taxpayer Identification Number, if the account requires it.

  3. Scan and upload copies of your ID and proof of address, if required. (If you’re opening a joint account, you’ll provide the same ID and address information for all account holders.)

  4. Submit the application and wait for the bank to review and approve your account. Many banks can approve your account in minutes.

  5. Review your confirmation email with details and instructions for accessing your account online and through an app, if you wish.

If applying in person, visit your neighborhood branch for the account you’re interested in. You’ll need to have your Social Security number handy, as well as originals of your government-issued IDs and proof of address.

Dig deeper: Joint bank accounts: Pros and cons for every stage of life

The process of funding an HYSA varies depending on whether you choose a traditional brick-and-mortar bank or an online-only bank.

Many traditional banks require a minimum opening deposit to activate your HYSA. This initial deposit requirement may be necessary to meet the minimum opening balance requirement set by the institution.

You can fund your HYSA at a physical location by:

  • Writing a check for your deposit amount

  • Depositing cash

  • Initiating an electronic funds transfer from another account, either at the same bank or from an external account

Online-only banks offer a streamlined process for funding your account by linking an external bank account online during or soon after opening your account. You’ll need your external bank's routing and account numbers handy for linking it to your new account. (You can find your routing and account number on your paper checks, by signing into your online banking portal or by calling customer support.)

You may also have the option of mailing a check to fund your account, although this method takes longer to process. If you mail a check, send it by certified mail, UPS or FedEx so that you can track its delivery.

Dig deeper: How much should you keep in a high-yield savings account?

After you’ve opened and funded your new HYSA, take a few additional steps to protect your money, stay on top of your finances and maximize your interest earnings.

Set up a username and password for access to your account through an online portal. That way, you can easily manage your HYSA and transfer funds into and out of your account as needed. You can also download your bank's mobile app to your phone or smart device for greater convenience and access to your account or mobile check deposit away from home.

Set up alerts to stay informed about activity in your HYSA for greater peace of mind. Most banks offer alerts by email, text message and through a mobile app. For example, you can set up alerts to let you know if you’re nearing a minimum balance threshold or when withdrawals are made from your account.

Many banks allow you to opt out of paper statements to instead receive electronic statements. These e-statements can provide an added layer of security against identity theft, as they eliminate the risk of sensitive financial information being stolen from your mailbox or recycling bin. You might also save a little money by opting into e-statements only, depending on your bank.

Consider setting up automatic transfers from a checking account to your HYSA to ensure consistent savings and to help you reach your financial goals faster. Choose a frequency — weekly, biweekly, or monthly — depending on your savings goals.

Avoid complications down the line by taking the time to designate a beneficiary on your account. Establishing a beneficiary ensures your savings balances are passed on in accordance to your wishes after you die. Your beneficiary won’t have access to your account until then. Make a note to revisit your beneficiary designations periodically, especially after major life events like marriages or the birth of a grandchild.

Joint account holders are people who share equal ownership of an account. For example, you and your spouse might be joint holders of your checking account. Both of you can deposit money, write checks or use a debit card to withdraw cash at an ATM, making it easier to manage shared expenses.

Unlike certificates of deposit, which come with fixed rates that won’t change over the life of your term, interest rates on high-yield savings accounts are variable and can go up or down periodically with market conditions.

Most banks won't alert you after a rate decrease, which means you’ll want to keep an eye on your HYSA's interest rate. If your bank lowers the rate on your HYSA or you find a better deal elsewhere, you can always transfer your savings to a higher-APY account to maximize your returns. (Keep an eye on changing savings rates in our daily rates guides.)

Dig deeper: CD vs. high-yield savings account — what to know when rates are high

The easiest way to withdraw money from your HYSA is to link it to an existing checking account either at the same or at a different bank. After you’ve linked the accounts, you can transfer money from your HYSA to your checking account for free when you need to pay bills or otherwise use your savings.

Some banks offer additional withdrawal options for their HYSAs, including:

  • Debit cards linked to the HYSA so you can withdraw cash from an ATM.

  • Check-writing privileges on the HYSA.

HYSAs are primarily designed for saving money, rather than making transactions, and so not all banks offer methods beyond digital transfers. Check with your bank to learn what withdrawal options they offer and about any associated fees.

⚠️ Watch out for monthly withdrawal limits

While federal regulations no longer limit how often you can withdraw from a savings account every month, some banks impose their own limits on withdrawals — sometimes six monthly withdrawals or transactions. Be sure to check your bank's current policy to avoid unnecessary withdrawal or other fees that can eat into your earnings.

Dig deeper: 10+ common bank fees you shouldn't be paying — and how to avoid them

Yes. Deposit accounts like HYSAs are protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 per depositor, per insured bank. Due to these protections, you’re unlikely to lose money with an HYSA due to a bank failure.

Look for terms like "member FDIC," "FDIC insured" or "NCUA insured" when comparing your options. And learn how to confirm your bank is FDIC-insured, if you're not sure.

Dig deeper: Can you lose money in a HYSA? It’s unlikely — but here’s what to watch out for

Learn more about how high-yield savings accounts work to safely grow your money faster with these common questions. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.

Saving up $10,000 is an impressive milestone that opens up several financial opportunities that can better position you for a more stable financial future. You can put it to work through passive income streams, contribute to growing a retirement fund or pay down high-interest debt. See our guide to the five smartest moves to make with your $10,000.

HYSA rates can change at any time, but they typically adjust after the Federal Reserve's rate-setting meetings, when the central bank sets the federal fund target rate — or Fed rate — the rate banks use to borrow and lend money to one another.

Which is better for you comes down to your deposit amount, need for access and savings goals. A no-penalty certificate of deposit could be a smart move if you have a lump sum of cash you won’t need for several months or a year. It locks in a fixed interest rate, protects your earnings if rates drop and lets you cash out your money without early withdrawal penalties.

A savings account — especially a high-yield account — might be better if you prefer easy access to your cash, plan to make regular deposits or want to take advantage of rising interest rates.

Compare these two deposit options in our guide to no-penalty CDs and savings accounts.

Opening deposit requirements vary by the institution. Many online-only banks and digital accounts won’t require a minimum opening deposit, though traditional banks may require minimum opening deposits from $25 to $20,000 to open an HYSA or to earn the highest rates.

The core difference between saving and investing lies in the accessibility of your money and the risks you take with it. Saving means keeping your money in secure accounts with little to no risk of losing your principal. On the other hand, investing involves buying assets like stocks, bonds or mutual funds that can potentially earn higher returns. Learn more in our guide to saving and investing to find the best approach for your money and financial goals.

Interest on HYSAs is typically compounded monthly, although there are a fair number of banks that offer daily compounding. The more often interest is compounded, and the longer it’s compounded for, the more you can earn over time.

Unlike simple interest, compound interest has a cumulative effect over time. The longer your time horizon is, the longer you have for compound interest to quickly grow your assets.

Say you invest $10,000 in an account that pays 5% interest. After one year, you’d have earned $500 in interest — for a total of $10,500 in your account. If you didn’t touch your account for another year, you’d have earned $525 in interest — $500 on your initial deposit and another $25 on the interest you earned in year one — for a new total of $10,525. Year three, you’d earn $526.25 in interest — $500 on your initial deposit and another $26.25 on the interest you earned. And so on each year, even without additional contributions to that initial $10,000.

Potential downsides to opening an HYSA include limited accessibility when compared to checking accounts and variable rates that can adjust at any time, but that goes for all types of savings and deposit accounts.

If you’re looking for a low-risk, FDIC-insured investment with a guaranteed rate that won’t change, consider opening a CD instead.

You also want to avoid oversaving in your savings account. While an APY of 4.5% is competitive for an HYSA right now, many other investments can potentially yield you a much higher return over time. Many of the best investment platforms and online brokers allow you to invest in stocks, mutual funds and other investments — including set-it-and-forget-it robo-advisors that can manage your portfolio for you — and historically, they deliver significantly higher returns than savings accounts over the long term.

Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to help consumers and business owners to make informed decisions and choose the right financial products for their needs.

Article edited by Kelly Suzan Waggoner

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