Young couple setting up a high-yield savings account.

High-Yield Savings Accounts: Definition And Best Of 2020

Molly Grace6-minute read
July 01, 2021

There are many ways to make your money work for you, from investing in stocks or real estate to placing your money in a money market account. However, many of the most popular methods for growing your wealth require you to tie up your money in places where you can’t easily access it if an emergency were to pop up.

This is part of what makes savings accounts so great – your money is fairly easy to get to if you need it quickly. The tradeoff with these accounts has traditionally been that you don’t get to grow your money in the same way as you would with, say, a brokerage account.

Enter high-yield savings accounts, which offer significantly higher interest rates than what you’ll get with traditional savings accounts.

Let’s take a look at these types of accounts, how they work and why they’re such a popular option for those looking to maximize returns on their savings.

What Is A High-Yield Savings Account?

While most savings accounts allow users to earn interest on their savings, the amount you’ll be able to earn will vary quite a bit from bank to bank, with more traditional banks on the lower end of the spectrum.

On average, traditional savings accounts earn interest at a rate of around 0.05%. If you have $10,000 in your bank and make no additional contributions, at this rate you’ll earn just $5 over the course of an entire year.

Compare this to an interest rate of 2%. With a balance of $10,000, after one year you’ll have racked up an additional $200 in pure interest.

In previous years, rates on high-yield savings accounts had risen upwards of 2%. However, with the Federal Reserve’s recent rate cuts, interest rates on these accounts have been pushed below 1%.

That doesn’t mean these accounts aren’t still a great place to park your money, though. With an interest rate of 0.5%, you can earn $50 in a year on a $10,000 balance – that’s five times what a traditional account with a rate of 0.05% would get you.

Best High-Yield Savings Accounts Of 2020

Note: Rates are accurate as of time of publication.

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

Bank

APY

Ally Online Savings Account

0.60%

American Express High Yield Savings Account

0.60%

Capital One 360 Performance Savings

0.50%

Chime Savings Account

1.00%

Discover Online Savings Account

0.60%

Marcus by Goldman Sachs Online Savings

0.60%

Simple Protected Goals Account

0.60%

Synchrony High Yield Savings

0.65%

 

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).

All of the accounts listed here boast no minimum deposit or minimum balance requirements and no maintenance fees.

Why Do High-Yield Savings Accounts Pay So Much More?

You might have noticed that all of the banks on our “best of list” have zero or a very limited number of brick and mortar locations. This is no coincidence.

Physical locations are expensive to own and operate. Because these banks operate completely or almost completely online, they can pass those savings onto you in the form of lower or nonexistent fees and higher interest rates.

Of course, the downside of working with an online-only bank is that everything is, well, online. If you’re someone who frequently heads to your bank’s local branch to withdraw or deposit cash, these accounts might not be a great choice for your primary savings account. But in an increasingly cashless world, many consumers who make the switch to an online-only bank find that they don’t really miss having a physical branch.

Are These Online High-Yield Savings Accounts Safe?

Whether you’re doing your banking in-person or online, you should always make sure you’re working with a reputable institution that’s a member of the FDIC.

Though it might seem sketchy at first to put your faith in a completely online bank, as long as the bank is FDIC-insured and you take the appropriate steps to protect your personal information (ex. creating secure passwords for your online banking accounts), your money is typically as safe there as it would be with a traditional, brick and mortar bank.

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

As you shop around and compare different accounts, it’s important to not only consider which bank offers the highest rates, but also which best meets your needs.

Here are some things to think about:

  • Interest rate (shown as “annual percentage yield,” or APY, which refers to how much you can earn in compounding interest over the course of a year), including whether you’ll need to maintain a minimum balance to earn a specific rate

  • Compounding frequency, as this can make a small difference in how much interest you earn – accounts might compound daily, monthly, quarterly or annually

  • Required initial deposit

  • Minimum balance required and what penalties are incurred if you go below the minimum

  • Fees, including maintenance fees, excess withdrawal fees or overdraft fees

  • Ease of transferring funds, in case you need to link accounts from different institutions (so you can transfer money from your savings into your checking account, for example)

  • Methods for making deposits and withdrawals

  • ATM network, if applicable, and fees charged for using out-of-network ATMs

  • Quality and availability of customer service

Who Should Have A High-Yield Savings Account?

Because they’re so user-friendly, high-earning and safe, high-yield savings accounts are a great choice for anyone working toward big savings goals or looking for a good spot to park their emergency fund.

Another great thing about these types of accounts is that they’re flexible, low-maintenance and easy to set up. If you want to keep your account with your in-person bank in case you ever need to deposit cash or talk to a representative face-to-face, there’s no reason you can’t also have an online savings account where the bulk of your savings can take advantage of the higher interest rates.

High-Yield Savings Account FAQs

What Is The Rule About Withdrawals?

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

However, there’s been a temporary amendment to this rule as 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.

How Do I Open A High-Yield Savings Account?

Opening a bank account with an online bank is much easier and much faster than opening one in person. It can often be done less than 15 minutes.

When you go to open a high-yield savings account online, be prepared to provide a lot of the same information you’d need to if you were opening an account with a brick and mortar bank.

Typically, the bank will ask you for your full name, social security number, contact information, address and date of birth. If the bank requires an initial deposit, you’ll also need to provide details for the account you’d like to use to fund it.

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 likely 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?

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.

Summary: Earn Money On Your Savings

If your money is just going to be sitting in a savings account anyway, it may as well be working for you. High-yield savings accounts allow you to make the most out of your savings. Plus, with the accessibility and flexibility of being almost entirely online, you’ll never have to worry about waiting in a long line at the bank ever again.

As you shop around for a high-yield savings account, be sure you’re only considering reputable, FDIC-insured institutions, and when it comes time to make a decision, remember that it’s not just about who has the highest rates – you should be satisfied with all of the bank’s offerings.

Learn more about personal finance on the Rocket HQSM Learning Center.

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    Molly Grace

    Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.