What Is A High-Yield Savings Account?
High yield savings accounts are an absolute must-have for individuals and families looking to grow their savings over time and earn a higher return on their deposits.
These accounts, offered by top financial institutions, are designed to provide savers with a competitive interest rate that is typically higher than the average interest rate on traditional savings accounts.
By opening a high yield savings account, you can take advantage of the opportunity to earn more interest on your savings than ever before. These accounts are available through online banks and credit unions, as well as traditional brick-and-mortar banks, so you can easily find the one that best fits your financial goals.
Read more to see not only the 5 best high-yield savings accounts, but a little more of a deep dive into the benefits of having one.
5 Best High-Yield Savings Accounts (2023)
|Bank Name||Interest Rate||Monthly Fees||Minimum Balance||FDIC Insurance|
|Ally Bank||0.50% APY||$0||$0||Up to $250,000|
|Marcus by Goldman Sachs||0.50% APY||$0||$0||Up to $250,000|
|Synchrony Bank||0.55% APY||$0||$0||Up to $250,000|
|American Express National Bank||0.50% APY||$0||$0||Up to $250,000|
|Discover Bank||0.40% APY||$0||$0||Up to $250,000|
How high yield savings accounts work
High yield savings accounts typically work by offering a higher interest rate than traditional savings accounts.
This higher interest rate is often earned on the account balance and is paid out regularly. Some high yield savings accounts may also have features such as no minimum balance requirements or no monthly maintenance fees.
However, you should note that high yield savings accounts may have limitations on withdrawals and may be subject to changes in interest rates over time. Typically you'll see 6 withdraws per month maximums.
Explanation of how interest rates work
Interest rates on high yield savings accounts are usually variable, meaning they can change over time based on market conditions.Keep this in mind when comparing different high yield savings account options.
When interest rates are low (i.e. 2020 - 2022), the difference between the interest rate on a high yield savings account and a traditional savings account may not be significant.
However, when interest rates are high (such as in 2023), it's the exact opposite!
When the federal funds rate is lowered, the interest rate on high yield savings accounts may also decrease.
When the federal funds rate is raised, the interest rate on high yield savings accounts may increase.
Other factors that can impact the interest rate on a high yield savings account include the financial institution offering the account and current market conditions.
Comparison of traditional savings accounts vs. high yield savings accounts
Traditional savings accounts and high yield savings accounts have several differences in terms of interest rates, fees, and account features.
- Interest Rates: High yield savings accounts generally offer a higher interest rate than traditional savings accounts. While traditional savings accounts typically offer interest rates ranging from 0.01% to 0.05%, high yield savings accounts can offer interest rates of 0.50% or higher, allowing you to earn more with the HYSA.
- Fees: Both traditional savings accounts and high yield savings accounts may come with fees, such as monthly maintenance fees or fees for excess transactions. However, high yield savings accounts may have fewer fees than traditional savings accounts, and some high yield savings accounts may have no fees at all.
- Account Features: High yield savings accounts may come with more features than traditional savings accounts.
For example, high yield savings accounts may offer online banking services, mobile apps, and other tools that can help you manage your savings. BTW, the top 5 high-yield savings accounts above all have fantastic online features.
Factors that impact interest rates on high yield savings accounts
- Market Conditions: The interest rates on high yield savings accounts are tied to the federal funds rate and subject to other economic indicators. When market interest rates rise, high yield savings account interest rates may also rise, and vice versa.
- Bank Policies: Each bank that offers high yield savings accounts may have its own policies and procedures for setting interest rates. Some banks may be more competitive than others in terms of the interest rates they offer, so you'll need to compare rates from multiple banks before opening a high yield savings account.
- Account Balances: Some high yield savings accounts may offer tiered interest rates based on the account balance.
For example, an account with a higher balance may earn a higher interest rate than an account with a lower balance. If you're looking for a high yield savings account, consider the minimum balance requirements and tiered interest rates offered by different banks.
- Promotional Offers: Some banks may offer promotional interest rates for new customers who open a high yield savings account. These promotional rates may be higher than the ongoing interest rates, but they may also have restrictions or requirements, such as a minimum deposit or a limited time period, read the [fine print]
- Account Type: High yield savings accounts can come in different types, such as online-only accounts or accounts offered by credit unions. Different types of accounts may offer different interest rates and fees, so again, please DYOR.
Benefits of high yield savings accounts
Higher interest rates than traditional savings accounts: High yield savings accounts offer interest rates that are significantly higher than the rates offered by traditional savings accounts.
For example, while the average interest rate on a traditional savings account may be around 0.05%, some high yield savings accounts offer rates of 0.50% or higher.
FDIC insurance protection for up to $250,000 per depositor: The Federal Deposit Insurance Corporation (FDIC) provides insurance protection for up to $250,000 per depositor per bank.
This means that if a bank were to fail, the FDIC would reimburse depositors up to $250,000 per account. This protection provides savers with peace of mind and helps ensure the safety of their deposits.
Online account management: High yield savings accounts are easy to open and manage online, with 24/7 access to account information. We love this feature and use it all the time!
No minimum balance requirements: Many high yield savings accounts have no minimum balance requirements. This means that even those with limited funds can start saving and earning interest right away.
Competitive interest rates compared to money market accounts or certificates of deposit (CDs): High yield savings accounts offer competitive interest rates compared to other savings options, such as money market accounts or CDs. You can earn more interest on their deposits without having to lock your money away for a set period of time, as is often required with CD's.
Automatic transfers for regular savings contributions: Many high yield savings accounts offer the option to set up automatic transfers for regular savings contributions. If this is an option with your account, definitely set it up. It's one of the sneakiest ways to save money with budgeting.
No monthly maintenance fees, inactivity fees, or other hidden costs: Many high yield savings accounts have no monthly maintenance fees, inactivity fees, or other hidden costs. This means that you can keep more of your savings without having to worry about additional fees or charges.
Ability to withdraw funds at any time without penalty (up to six withdrawals per month): High yield savings accounts typically allow savers to withdraw funds at any time without penalty, up to a certain limit (usually six withdrawals per month). Imagine, you can get access to your savings when you need it, without having to worry about penalties or fees. Wouldn't that be awesome if every account did that?
What Do You Think?
You read our take, but ultimately, the choice is up to you. Is a HYSA right for you? Does it make the most sense to open one now in this macro environment? It just might.
If so, don't forget to come back this article so you always have a list of the most up-to-date high-yield savings accounts!