What Is a High-Yield Savings Account and How Does It Work?
Updated June 7, 2024 at 3:27 pm
What is a high-yield savings account? For the most part, these accounts are just like regular savings accounts but with dramatically better rates. This point will become obvious when you start researching yields offered by the nation’s biggest banks. For example, Chase offers a paltry 0.01% APY on its savings accounts, and Wells Fargo fares only slightly better with its 0.25% APY in most ZIP codes on accounts with up to $99,999.
Some high-yield savings accounts have better features and perks than others, which may include digital banking tools like mobile deposit, helpful mobile apps and easy online transfers. Fees for high-yield savings accounts can also vary by bank and account type, although many of the best banks that offer these accounts don’t charge any maintenance fees or hidden fees. Further, some high-yield savings accounts also require you to put down a minimum deposit or maintain a certain account balance to avoid monthly fees. Before you choose a high-yield savings account, make sure you know these details and read over other fine print.
Vault’s Viewpoint
- Where many big banks offer savings account yields that are barely worth pursuing, today’s best high-yield savings accounts offer rates slightly below or above 5.00% APY.
- Some high-yield savings accounts charge monthly maintenance fees or have minimum balance requirements, but not all of them do.
- To find the right savings account for your needs, consider how much interest you can earn, note any minimum balance requirements and look out for fees that could be charged (and note whether you can avoid them).
What Is a High-Yield Savings Account?
A high-yield savings account is a savings account offered by traditional banks and online banks that is typically federally insured and comes with a much higher interest rate than other accounts.
Outside of offering a better return on savings that can keep up with inflation (and then some) over time, the terms of these accounts vary. That said, many of the best high-yield accounts are offered by online banks instead of brick-and-mortar institutions, presumably because these banks have less overhead and can offer more interest on savings as a result.
Either way, savings accounts offer a convenient place to store cash you might need for short-term or mid-term goals. For example, savings accounts are often used to store emergency savings or money someone is putting away for a car or the down payment on a home.
How Does a High-Yield Savings Account Work?
Because individual high-yield savings accounts all have their own terms and conditions, you’ll want to read over the fine print from each provider to know how the accounts work. That said, the vast majority of high-yield savings accounts come with FDIC insurance for amounts up to $250,000 per depositor, per account type. This makes high-yield savings accounts a safe place to store your extra funds compared to investment accounts that are prone to market volatility.
High-yield savings accounts may also come with:
- Account limits: Some accounts may limit how many deposits or withdrawals you can make within a billing cycle.
- Monthly maintenance fees: Some high-yield savings accounts have fees that can often be avoided by keeping a minimum amount on deposit.
- Opening balance requirements: Many savings accounts require a minimum amount of money to open an account.
High-yield savings accounts may be offered by traditional banks that have checking accounts and other financial accounts as well as loans and retirement savings products. On the other hand, online banks tend to offer few types of accounts overall. Ultimately, this is one of the many reasons you’ll want to compare banks and their offerings before you open a high-yield savings account to earn more interest.
Pros
- High-yield savings accounts let you secure a greater return on your money, which can compound over time
- Safely save for the future thanks to FDIC insurance
- Many banks with savings accounts offer mobile apps and digital banking tools like mobile deposit
Cons
- Fees and fine print for savings accounts vary
- Some accounts require monthly fees, minimum balance requirements or both
- Interest rates can go up and down based on market conditions or a bank changing up their offer
How To Choose a High-Yield Savings Account
Before you choose a high-yield savings account, you’ll want to think over how you bank and the factors you care the most about. Here’s a rundown of the main considerations to keep in mind before you start saving.
Balance Requirements
Some high-yield savings accounts require you to have a specific amount of money to open an account in the first place, whereas others require you to maintain a specific balance each month to avoid paying monthly maintenance fees. Further, some banks only offer their highest APYs on accounts that meet a specific minimum balance requirement. For example, you need a minimum balance of at least $5,000 to earn the best rate (of 4.55% APY) with the Platinum Savings account from CIT Bank.
Digital Banking Tools
If you do all or part of your banking online, you’ll want to check whether the bank has a mobile app you can use with features like mobile deposit. Also check for online bill pay, savings tools and the ability to transfer money between accounts.
FDIC Insurance
While the majority of banks offer FDIC insurance on deposit, it goes without saying that you’ll want to verify this before you open a new account.
Fees
Check for monthly maintenance or service fees and other hidden fees. The best high-yield savings accounts tend to come without these fees.
Interest Rates
You’ll also want to compare accounts based on the APY each savings account offers and what it takes to earn it. You’ll want to open a savings account with a bank that’s offering the best yield you can get. Most high-yield savings accounts offer rates between 4-5% APY. It is exceedingly rare to find a 6% interest savings account, and the possibility of locating a 7% interest savings account is almost impossible.
Other Accounts Offered
If you want to do all or part of your banking in one place, check which other accounts a financial institution offers in addition to savings. Unfortunately, many online banks with the best APYs for their savings accounts do not offer checking accounts.
Physical Locations
Finally, decide whether having a bank with physical locations is important to you. If you don’t mind doing all of your banking online, you can choose from the best online banks and traditional institutions with branches near your home.
How To Open a High-Yield Savings Account
Once you find a high-yield savings account that suits your needs, you can apply to open an account online or in person. Plan on taking the following steps:
- Step 1: Apply for an account. Find an account to apply for online or visit a local bank or credit union to apply in person.
- Step 2: Share your personal details and information. Prepare to share information like your full name, address of residence and date of birth, along with your email address and phone number.
- Step 3: Provide your Social Security number (SSN). You’ll also need to share your SSN so the account can be tied to you for tax purposes.
- Step 4: Link other bank accounts. Once your account is open, you can fund it with cash in person at a physical bank branch. If you’re opening a savings account online, you can link it to another account you have and set up a transfer of funds.
Whether you open a high-yield savings account in person or online, you’ll almost certainly have an online account, mobile app access or both so you can manage your account on the go.
Frequently Asked Questions
How Much Will $1,000 Make in a High-Yield Savings Account?
If you put $1,000 in a high-yield savings account earning an APY of 5.00%, you’ll have a total balance of $1,050 at the end of 12 months. If you leave the money alone for 10 years and let it compound, you’ll have $1,628.89.
Where Can You Open a Savings Account?
You can open a savings account at almost any type of bank or credit union or with a range of online banks. Some of the best banks for high-yield savings include Discover, UFB Direct, CIT Bank and Bask Bank.
What Are Savings Account Fees?
Some savings accounts charge monthly fees if you don’t keep a specific amount of money on deposit. However, you may be able to avoid these fees with a healthy balance in your account. There are also plenty of high-yield savings accounts that don’t charge any fees.
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