Young couple setting up a high-yield savings account.

What Is A High-Yield Savings Account And Should You Use One?

Sidney Richardson6-minute read
July 01, 2021

There are many different ways to grow your savings, from investing in stocks to buying real estate. Unfortunately, many of the investment methods out there require us to take on some form of risk – or make an agreement not to touch our money for a set period of time.

This lack of liquidity and threat of risk is why regular old savings accounts are some of the safest places to grow your hard-earned cash. In a savings account, you can essentially grow your money risk-free and withdraw funds whenever you need to. The only problem? Your money doesn’t grow very quickly. If you’ve ever excitedly checked your most recent interest payout for your savings account and found you only made a few dollars (if that), you’re not alone. The solution to this? High-yield savings accounts.

If you’re looking to grow your savings safely over a short period of time, a high-yield savings account might be perfect for you. But what exactly is a high-yield savings account? Let’s break down what purpose these accounts serve and how one could potentially help you.

What Is A High-Yield Savings Account?

A high-yield savings account is just like any regular savings account at your bank – except it pays out much more in interest. High-yield savings accounts have a higher annual percentage yield, or APY, than normal savings accounts. As an example, your regular savings account might have a APY of 0.06%, while a high-yield account could have a APY of 0.85% or more.

To put that in perspective, let’s say you open a savings account with $1000 and intend to contribute $50 each month to the balance. With the first, regular savings account, you would earn a total of $1.15 in interest after a year with an APY of 0.06%. With the second, high-yield savings account, you would instead earn $16.36 – a significant amount more.

How Do High-Yield Savings Accounts Work?

A high-yield savings account works essentially the same as a normal savings account. You deposit money and your bank pays you interest over time. You can usually make withdrawals whenever needed, though some banks may charge you a fee for withdrawing too many times in one month.

Your money grows based on a set APY amount and compounds on a frequency set by your bank that could be daily, monthly or even yearly. Each time your interest compounds, it’s based on your new balance amount which can help your account balance grow quickly.

Depending on your bank, a high-yield savings account might require a minimum balance. If your account ever dips below this balance, you could be charged a fee. Not all banks charge these fees, so it’s a good idea to shop around and do your research before committing to a bank’s high-yield savings account offer.

Should You Open A High-Yield Savings Account?

So, should you open a high-yield savings account to help grow your money? Let’s go over the main benefits and drawbacks of having one of these accounts.

Benefits Of A High-Yield Savings Account 

  • The APY is much higher than traditional savings accounts. As we demonstrated in our example earlier, you can earn much more on your savings with a high-yield account.
  • Savings will grow more rapidly, even when starting out with a small amount. Since your APY is higher, your compounding interest will help your money grow faster than usual.
  • The money can be just as easy to access as in a checking account. High-yield savings accounts are usually very liquid, meaning you can access the money very quickly when needed.
  • Most banks have online access or even a mobile app. Many places you can get a high-yield savings account have online account access or are completely online banks themselves, making your money easier to access than ever.

Drawbacks Of A High-Yield Savings Account  

  • The interest rate of an account can fluctuate. One of the problems with high-yield savings accounts is that the interest rates are not fixed. Though your interest rate may be high at the time you open your account, there’s a good chance it will trend downward at some point in the future.
  • Growth can be slow compared to other financial products. Though high-yield savings accounts grow faster than regular savings accounts, they still grow much slower than other investments such as stocks or even certificate of deposit accounts. If you need your money to grow very quickly, this may not be the option for you.
  • Some online savings accounts don’t have a physical bank to visit. Some online banks that offer these accounts don’t have brick and mortar locations that you can visit, which can make depositing cash and checks potentially difficult. There may also be security and fraud concerns with online-only banks.
  • High-yield savings accounts don’t offer a debit card to users. Savings accounts in general don’t often offer debit card access to their users – you typically need a checking account or money market account to make debit or credit card transactions.
  • There could be minimum deposit or withdrawal restrictions. Many high-yield savings accounts require that you make a minimum deposit to keep your account open or may limit the number of withdrawals you can make each month. If you exceed the withdrawal limit or fall below the minimum balance requirement, you could be charged fees.

The Best High-Yield Savings Accounts Of 2022

Note: Rates are accurate as of time of publication, July 2022.

Here are a few of our favorite high-yield savings account offerings.

 

Bank

APY

Ally Bank Online Savings Account 

1.00%

American Express High Yield Savings Account

1.00%

Capital One 360 Performance Savings

1.00% 

Chime Savings Account 

0.50%

Discover Online Savings Account

1.10%

Marcus by Goldman Sachs Online Savings

1.20% 

Synchrony High Yield Savings

1.40%

 

To determine which banks made our list, we not only looked at which have the highest returns on their savings accounts, but we also considered things like customer service, ease of use, fees and required minimum balance.

All banks listed are insured by the Federal Deposit Insurance Corporation (FDIC).

What Should You Consider When Evaluating High-Yield Savings Accounts?

When you’re in the market for a high-yield savings account, you’ll be faced with a lot of different options. In order to get the best deal, you’ll want to shop around a bit and consider a number of factors, including:

  • Interest rate: Pay attention to the rate at which your account will accrue interest. It will be listed as APY, not APR, because your account is being paid interest, not charged it.
  • Compounding frequency: The more frequently your account’s interest compounds, the more money you stand to make, since interest will be based on the new account total after each compounding. Some accounts may compound daily.  
  • Required initial deposit: This is the dollar amount a bank requires you to have to open an account with them. If you’re not starting with a large sum of money, a big upfront initial deposit can be a drawback. 
  • Minimum balance amount: This is the “floor” of the amount of money that needs to stay in your account. If you dip below your minimum balance amount, you could be charged a fee. 
  • Bank fees: Some banks will charge you various fees associated with the upkeep of your account, such as service charges, fees for exceeding a withdrawal limit, etc. Be sure to know all the fees you may be responsible for before opening an account.
  • Ease of transfer: It may be easier or harder at various banks to transfer money between different banks or accounts. Find out what fees you may have to pay to move your money around in the future.
  • Method of deposit: If the bank you’re considering is completely online, keep in mind the way you’ll make deposits to the account. Without a brick and mortar location, you won’t be able to make cash deposits and will be restricted to online deposits. 

How To Open A High-Yield Savings Account

If you’ve decided to open a high-yield savings account, the good news is, it’s usually fairly easy. Whether you’re opening your account to save money for a vacation, emergency fund or some other upcoming expense, it should be easy to get started.

1. Compare rates and services: First, do your research. Check out different high-yield account offerings online, like the ones we shared above, and compare and contrast each of the offerings to decide which would be most beneficial to you.

2. Submit an application: Like any other savings account, you’ll likely have to submit an application with your social security number and/or driver’s license or other government-issued photo ID to confirm your identity. Many banks will allow you to do all of this online.

3. Make a deposit: To grow your money, you have to start somewhere. Once you open your account, you’ll need to make a deposit, usually above a certain minimum amount such as $25 – $100 (or potentially more, depending on the bank).

High-Yield Savings Account FAQs

Still have more questions about high-yield savings accounts? Let’s review a few frequently asked questions.

What is the rule about withdrawals?

Due to federal banking regulations, all savings accounts were previously limited to six withdrawals per month. If you made more withdrawals than this (or if you made more withdrawals than what your bank allows, which may be a lower number), you’d likely be charged an excess withdrawal fee – though not every bank charges this fee. Typically, this fee is no more than $15.

There was an amendment to this rule, known as Regulation D, in of April 2020. Due to the economic strain caused by the COVID-19 pandemic, the Fed announced that it would allow financial institutions to remove the six-transaction limit.

Despite the lifting of this restriction, some banks still impost withdrawal limits of their own, which you should be sure to research when checking out accounts.

Will my rate always stay the same? 

No, you won’t always have the same interest rate on your high-yield savings account. Rates fluctuate due to a variety of different factors, so your account’s APY will go up and down throughout the years that you have the account.

While this can be a bummer if you have to watch your once-high rate slowly trend downward, remember that even the lowest rates on these high-yield accounts still give you a lot more bang for your buck than those on traditional accounts. And just because rates are going down now doesn’t mean they won’t ever rise again.

How do I deposit or withdraw money from an online account?

Every online bank is a little different, but in general, you can deposit money into your online high-yield savings account by: linking it to an account you have with another bank and transferring the money from there; setting up a direct deposit so that part of your paycheck goes directly into your savings; if it’s a check, taking a photo of the endorsed check with your phone to deposit it virtually (if the bank offers this service); sending a wire transfer; sending the deposit as a check or money order by mail.

It’s usually not possible to deposit cash into an online savings account. If you have cash you want to put into savings, some users work around this by depositing the cash into an account they have with a brick-and-mortar bank and then transferring the money from that account into their online savings.

To withdraw money, you can transfer the funds to another linked account, request a wire transfer or ask for the bank to send you a check.

The Bottom Line: You Can Earn Money On Your Savings With A High-Yield Savings Account

A high-yield savings account is a great way to grow your money safely at a rate that’s typically quite a bit faster than your average savings account. Though some of these accounts may charge fees or limit you to online banking only, they are still a great option for people looking to put money away without any major risks involved.

Interested in seeing how much you could save with a high-yield account? Try using our savings calculator to estimate how quickly you’ll be able to reach your financial goals.

Sidney Richardson

Sidney Richardson is a professional writer for Rocket Companies in Detroit, Michigan who specializes in real estate, homeownership and personal finance content. She holds a bachelor's degree in journalism with a minor in advertising from Oakland University.