High-yield savings accounts are like bank vaults that slowly fill with cash. Though they have their drawbacks -- what financial account doesn't? -- they make great places to put money for safekeeping.
A high-yield savings account (HYSA) has an annual percentage yield (APY) that is well above the national average APY. If you're building an emergency fund, consider storing it in an HYSA. That way, you can withdraw money at any time without penalty. Plus, you get a great interest rate.
Check out the pros and cons of high-yield savings accounts so you can easily compare them to alternatives like regular savings accounts and money market accounts. Read on to save for your financial goals the right way.
High-yield savings account comparison
We recommend comparing high-yield savings account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.Min. to earn: $0 | New customers can earn up to a $300 bonus with qualifying direct deposits! | Open Account for SoFi Checking and Savings |
Open Account for CIT Platinum Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.00% APY for balances of $5,000 or more Rate info5.00% APY for balances of $5,000 or more; otherwise, 0.25% APYMin. to earn: $100 to open account, $5,000 for max APY | N/A | Open Account for CIT Platinum Savings |
Open Account for NexBank High-Yield Savings Account from Raisin Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.26% Min. to earn: $1 | N/A | Open Account for NexBank High-Yield Savings Account from Raisin |
Pros of high-yield savings accounts
Here are some of the benefits of choosing a high-yield savings account.
1. High annual percentage yield (APY)
With a high-yield savings account, you'll earn more interest on your savings over time.
For example: If you had $5,000 to save, here's how much interest you could earn in a high-yield vs. a traditional savings account:
- High-yield with 4.0% APY: $2,456.96 after 10 years
- Traditional with 0.4% APY: $204.05 after 10 years
(The exact interest earned would depend on many factors -- like how often your bank compounds interest and whether or not your interest rate changes over the years.)
2. Interest compounds daily
Most high-yield savings accounts pay interest daily. That's more profitable than what most banks do; only deposit interest into your account once per month. Over the long run, daily compounding leads to more cash for you.
3. Few fees
High-yield savings accounts are almost exclusively available through online banks. These banks don't have branches with in-person customer service, so they cost less to operate than brick-and-mortar banks do. As a result, digital banks are able to offer you more competitive interest rates and charge fewer fees. Many HYSAs charge zero monthly fees.
4. Easy to withdraw funds
Savings accounts keep your funds within easy reach, so you can access your savings when you need them most. That's why they're a great home for emergency funds and short-term savings. Unlike certificates of deposit (CDs), savings accounts let you withdraw money sooner than planned at zero cost.
5. Online account tools
Since most high-yield savings accounts are offered by online banks, they usually have strong tools. These include online portals and mobile apps that let you quickly view your account balance, transfer funds, pay bills, and more. Many brick-and-mortar banks lag in this area.
6. FDIC insurance
All the top high-yield savings accounts are FDIC insured up to $250,000 per depositor per bank. This means that the FDIC will reimburse you up to this amount if your bank goes out of business and is unable to pay you back. The NCUA will reimburse you if you open a high-quality account through a credit union and it fails.
Looking for a list of recommended high-yield savings accounts?
If you're ready to open an account and wondering which ones we recommend, we've got a better page for you! Click the button below to head to our Best High-Yield Savings Accounts page for a list of specific accounts we recommend:
Best High-Yield Savings Accounts
Cons of high-yield savings accounts
Here are some of the drawbacks to opening a high-yield savings account.
1. Withdrawal limits
All savings accounts used to charge customers fees if they made more than six monthly withdrawals. (This was mandated by a federal law known as Regulation D.) The government waived this at the start of the COVID-19 pandemic and has yet to reinstate it. But some banks still haven't changed their ways.
As a result, you could face penalties if you frequently move money out of your savings account. Search your bank's website or contact a representative to check the bank's policy on withdrawal limits.
2. Withdrawals might require a few extra hoops
Though it's typically easy to withdraw money from a savings account, banks sometimes require extra steps. Most savings accounts don't include checks, and only a few have ATM cards. To withdraw cash, you may have to transfer money to a checking account first. This can take a few days if your checking account is at another bank, making it hard to withdraw money quickly.
3. Minimum balance requirements
Some high-yield savings accounts have minimum balance requirements, meaning you must maintain a certain balance to get the best interest rate. For example, if an account requires you to deposit $5,000 to earn a premium rate, but your deposits total $3,000, you’ll earn a lower-than-advertised rate.
One more thing: Some institutions may require you to meet minimum deposit requirements, such as depositing $1,000 to open an account. Many of the top HYSAs don't require this.
4. Rates fluctuate
Savings account rates can change over time. Sometimes this is good news, and sometimes it's not. But either way, there isn't much you can do about it. That's why it's tough to predict how much you'll actually earn in interest in a given year. If the Federal Reserve reverses course on interest rates, then HYSA rates will probably follow.
5. Not a good fit for long-term savings
High-yield savings accounts earn you more money than brick-and-mortar bank accounts do. But often, you still won't earn enough to keep up with inflation. Even though your account balance rises, your buying power decreases.
You can avoid losing buying power by investing your long-term savings in alternatives like the stock market. That way, you have the potential to build serious long-term wealth. In the same vein, money market accounts are best suited to short and mid-term savings.
Is a high-yield savings account right for you?
Whether a high-yield savings account is right for you depends on one thing: what you need the money for. Savings accounts are great for:
- Building your emergency fund.
- Saving for large purchases you plan to make within the next five years.
Keeping your money in a top-tier savings account will earn you interest while shielding you from stock market volatility. In other words, you won’t suddenly lose everything to a poor-performing investment. It's one of the safest ways to save dollars.
Are you comfortable with online banking? If you don't own a smartphone and aren't too comfortable using the internet, stick with traditional low-yield bank accounts.
If you're ready to open a high-yield savings account, the next step is to choose the right savings account for you.
High-yield savings account comparison
We recommend comparing high-yield savings account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.Min. to earn: $0 | New customers can earn up to a $300 bonus with qualifying direct deposits! | Open Account for SoFi Checking and Savings |
Open Account for CIT Platinum Savings Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.00% APY for balances of $5,000 or more Rate info5.00% APY for balances of $5,000 or more; otherwise, 0.25% APYMin. to earn: $100 to open account, $5,000 for max APY | N/A | Open Account for CIT Platinum Savings |
Open Account for NexBank High-Yield Savings Account from Raisin Member FDIC. Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.26% Min. to earn: $1 | N/A | Open Account for NexBank High-Yield Savings Account from Raisin |
FAQs
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
High-yield savings accounts are safe as long as they're FDIC-insured. The good news is all the top high-yield savings accounts are FDIC-insured, meaning the FDIC will reimburse you up to $250,000 if your bank goes out of business and is unable to pay you back.
Our Banking Experts
By:Kailey Hagen
Writer
Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.
By:Cole Tretheway
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact CheckedEric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
