A high-yield savings account is the same as a standard savings account but pays a much higher yield on your money. The national average yield on savings accounts is 0.23 percent. However, you can find high-yield savings accounts that pay over 4 percent — nearly 20 times more than the average.
Why you should consider a high-yield savings account
A savings account is an important part of any financial portfolio, both for having funds for future expenses and to build up your wealth over time. When you’re building your savings, you want that money to earn a competitive yield. Putting your savings in a high-yield savings account will keep your money safe while accumulating interest faster.
Benefits of a high-yield savings account
- Emergency fund: One of the best ways to use a high-yield savings account is to use it for your emergency fund. If you make regular deposits into a high-yield savings account instead of investing all of your money, you don’t have to worry about a market drop wiping out your savings and pushing back your goal, for example.
- Short-term savings goals: High-yield savings accounts are also a good way to save for short-term goals, such as saving for a vacation or a car. If you want to pay for something in the next few months, you don’t want to put your money into risky investments like stocks. If the market drops, you’ll lose your vacation fund.
- Park your windfall: High-yield savings accounts are also a good place to store windfalls, such as stimulus checks, bonuses or gifts. You can save the windfall in your high-yield savings account until you decide what to do with the money.
- Recession-proof your finances: Economists predict that there’s a 64 percent chance the U.S. will enter a recession in 2023. That means consumers will experience a tighter budget and fewer job prospects — but bolstering your savings by earning a higher rate of return on them can give you a slight advantage and provide you with greater security.
Disadvantages of high-yield savings accounts
- Poor options for long-term goals: Although high-yield savings accounts have high yields compared with standard savings accounts, they don’t pay enough interest to hit long-term savings goals or even keep up with inflation. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds are likely to be a better choice.
- May have more stringent requirements: High-yield savings accounts may have tougher requirements than a typical savings account. For example, you might need to have a larger deposit to qualify to open the account at certain banks.
- May be a bit harder to access your money: High-yield savings accounts, when they’re opened at a separate financial institution from your checking account provider, can be a bit more difficult to access. For example, it can take a couple of days to transfer funds to your checking account. Additionally, you’re typically limited to six withdrawals per month from savings accounts.
Can you lose money in a high-yield savings account?
Like other savings accounts, high-yield savings accounts are protected by the Federal Deposit Insurance Corp. (FDIC), which means you’ll receive up to $250,000 in protection per account holder at the bank if it fails. If your bank, for some reason, can’t return the money you’ve deposited in the high-yield savings account, the FDIC will reimburse you for the loss.
However, your savings can lose purchasing power over time because of inflation. For example, if your high-yield savings account pays 2 percent and the annual inflation rate is 6 percent, your money has lost 4 percent of its purchasing power. The higher the rate, the less purchasing power is lost.
What to look for in a high-yield savings account
When you’re comparing high-yield savings accounts, there are two main features to consider: annual percentage yield (APY) and fees.
- Annual percentage yield: APYs are the primary reason to open a high-yield savings account, so you want to find the account that pays a high rate of interest. These days, a competitive high-yield savings account pays up to 4 percent or more.
- Fees: Some banks charge monthly fees on their savings accounts. Usually, you can avoid these fees if you meet certain requirements, such as maintaining a minimum balance or making a minimum deposit each month. If possible, look for a high-yield savings account that doesn’t charge monthly fees. If you have to go with an account that charges fees, make sure that you can easily meet the fee waiver requirements each month.
Top savings accounts
Make sure to shop around to find the best online savings account that’s accessible, pays competitively and meets your needs. Here are some top options.
Ally Bank
Ally is an established online bank that offers a full set of financial services, including banking, lending and investing.
Its savings account pays a competitive interest rate, with no monthly fee and no minimum balance. If you’re thinking about transitioning fully to online banking, Ally is a great option to consider. Bankrate named Ally Bank the best bank of 2022 and 2023.
Live Oak Bank
Live Oak Bank is an online bank that consistently offers some of the best interest rates on the market. There is no minimum balance and no monthly fees for its savings accounts, so anyone can take advantage of its great rates.
Bread Savings
Bread Savings is an online bank that offers a high-yield savings account and CDs. The savings account consistently pays a competitive APY, and there’s no minimum balance required to earn the APY or avoid fees.
Marcus by Goldman Sachs
Marcus is an online bank that offers a savings account and CDs, as well as investing and lending products. The bank’s savings account offers a competitive APY, and there’s no minimum balance required to earn the APY or avoid fees.
Quontic Bank
Quontic Bank is a digital bank known for its accessibility: There are no monthly fees, and the minimum to open a savings account is only $100. The account’s competitive APY also helped it earn the title of Best Savings Account for 2023 from Bankrate.
— Bankrate’s René Bennett contributed to an update of this story.
FAQs
These days, a competitive high-yield savings account pays up to 5 percent or more. Fees: Some banks charge monthly fees on their savings accounts. Usually, you can avoid these fees if you meet certain requirements, such as maintaining a minimum balance or making a minimum deposit each month.
Is a high-yield savings account worth it? ›
While you can grow your money daily and take on zero risk with high-yield savings, they are not the best way to grow your wealth long-term. The rate of inflation can be higher than the yield you earn over time, so it's better to not keep piling cash into your savings and instead invest your money.
How much will $10,000 make in a high-yield savings account? ›
The Bankrate promise
| Type of savings account | Typical APY | Interest on $10,000 after 1 year |
|---|
| Savings account paying competitive rates | 5.25% | $539 |
| Savings account paying the national average | 0.58% | $58 |
| Savings accounts from various big brick-and-mortar banks | 0.01% | $1 |
Apr 2, 2024
With a high-yield savings account, the interest you're earning on the principal is increased, as is the interest you earn on that interest. How often your interest is compounded depends on the account. Some compound daily, others monthly. The more frequently your interest compounds, the greater your return.
Can you ever lose your money with high-yield savings account? ›
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
What are the disadvantages of a high-yield savings account? ›
What are the disadvantages of a high-yield savings account? 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.
Which bank is giving 7% interest in savings accounts? ›
Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.
How long do you need to keep money in a high-yield savings account? ›
There's no rule on the exact amount to have in your high-yield savings account. The amount of money you should store in these accounts depends on various factors. However, the general rule of thumb is that you should have liquid access to enough cash to cover between three and six months of your expenses.
How often do you get money in a high-yield savings account? ›
Interest compounding and APY
Banks can do this daily, monthly, quarterly, semiannually, or annually. The more often interest compounds, the more interest you'll earn. Many top banks offer HYSAs where interest compounds daily.
How much should a 30 year old have saved? ›
Fidelity suggests 1x your income
So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.
If your goal is to lock in a high rate of interest on funds you don't need to access for a period of time, a CD might be your best option. However, a high-yield savings account may be the better choice if you want to earn solid interest on your savings while still keeping the money relatively accessible.
Do you pay taxes on Hysa? ›
Do I have to pay taxes on HYSA? Yes, you have to pay taxes on the interest earned from a savings account. If you earn more than $10 in interest on your savings account, the bank holding your account will send you a Form 1099-T to include in your tax return.
What are the pros and cons of a high-yield savings account? ›
Pros and cons of a high-yield savings account
A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.
Why shouldn't I use a high-yield savings account? ›
While high-yield savings accounts offer high APYs and zero risk, they're not the best way to grow your wealth long-term. That's because your APY can go up and down, and your yield may not outpace the inflation rate.
How much is too much in high-yield savings account? ›
Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”
Does opening a Hysa affect credit score? ›
This is why it is important to understand when your credit is going to be pulled and which type of credit pull is being performed. Opening a savings account only has the potential to trigger a soft credit inquiry and it doesn't impact your credit score.
How long should you keep money in a high-yield savings account? ›
Stampf recommends keeping six to 12 months' worth of expenses in a high-yield savings account for easy access to cash in case of an emergency and saving for larger expenses that are are coming in the short term, like buying a home.
What happens if you put 50000 in a high-yield savings account? ›
If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 5.32% APY,* your one-year interest soars to over $2,660.
How much of my money should be in a high-yield savings account? ›
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
Should I put my money in a high-yield savings account or invest? ›
A savings account is the ideal spot for an emergency fund or cash you need within the next three to five years. Good for long-term goals. Investing can help you grow money over the long term, making it a strong option for funding expensive future goals, like retirement.
