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A high-yield savings account is a bank account that offers a significantly higher interest rate than a traditional savings account. You might also hear them called “high-interest savings accounts.”
These accounts offer an easy way to earn competitive interest on your money, and they’re typically protected with FDIC insurance (or NCUA insurance at credit unions). This protection makes them a smart option for every consumer.
But how do high-yield savings accounts work, and are they worth the hassle of switching banks? Let’s dive in.
What is a high-yield savings account?
A high-yield savings account is similar to a traditional one, in that you use it to store funds and earn interest. High-interest savings accounts are separate from checking accounts: You would generally use a high-yield savings account to save toward a specific goal, while a checking account allows you to manage everyday spending.
So what’s the difference between a high-yield savings account and a traditional one? High-yield savings accounts offer a much higher annual percentage yield (APY) than regular checking and savings accounts. This helps your money grow more quickly over time.
The best high-yield savings accounts are typically only offered by online financial institutions, so you won’t have access to a physical branch. But that tradeoff can be worth it since high-interest savings accounts have a higher return and fewer fees.
Are high-yield savings accounts worth it?
If you already have a checking account or savings account with a brick-and-mortar bank, you may not think that opening a high-yield savings account is worth the effort. But opening a new account can pay off in three big ways:
1. You’ll get the best savings account interest rates
When you stash your money in a savings account, you expect it to grow over time. But you might be surprised if you use a regular savings account. According to the Federal Deposit Insurance Corporation (FDIC), the national average annual percentage yield (APY) is just 0.21%.¹
Know the difference: APY on a bank account refers to the interest you’ll earn while APR on a credit card refers to the interest your pay.
Imagine you save $1,000 in a savings account with that average interest rate. After five years, your account would increase to $1,010.55. That’s right: you’d only get $10.55 in interest over five years.
High-yield savings accounts, on the other hand, offer a much higher rate of return. For example, if you opened a high-yield savings account with a 2.00% interest rate and deposit $1,000, your balance would grow to $1,105.08 over five years. With the higher rate, you’d earn more than $105 purely from interest!
These calculations assume you don’t make additional deposits into your account.
| Savings Account | High-Yield Savings Account | |
|---|---|---|
| Interest Rate | 0.21% | 2.00% |
| Initial Deposit | $1,000 | $1,000 |
| Term | 5 years | 5 years |
| End Balance | $1,010.55 | $1,105.08 |
| Total Interest | $10.55 | $105.08 |
2. You’ll build better savings habits
Why open a high-yield savings account? The potential to earn higher interest may be the motivation you need to start regularly putting money into savings.
And having money set aside is important. Life has a habit of sneaking up on you at the worst times — whether your car gets a flat tire on your way home or your dog gobbles your socks and needs surgery. Unfortunately, many of us are not prepared for these emergencies when they happen.
According to the Federal Reserve, 32% of Americans wouldn’t be able to pay for a $400 emergency with savings.2 Instead, they’d have to borrow money or use a credit card, or they wouldn’t be able to cover the cost at all.
Opening a new high-yield savings account and setting up automatic contributions can help you cover these emergencies. Even if you only deposit a few dollars each week, you can start building a safety net that you can rely on when times are bad.
3. You’ll reach your goals faster
What’s the problem with only having a checking account or stashing cash in an envelope under your mattress?
The money is too accessible. If a sale pops up or a new must-have phone launches, you may be tempted to spend outside your budget. But thanks to federal regulations, you can only make six “convenient” withdrawals from a savings account per month. This limit makes it more challenging to reach into your savings when you want to splurge.
A regular savings account may help you stay focused on your goals, but you’re not doing all you can to maximize your savings. Sure, you’ll earn interest with a basic account, but growth will be slow.
A high-yield savings account helps you reach your goals faster – whether you want to save for an emergency fund (go you!), splurge on a European vacation, or put a down payment on a house.
How do I choose the best high-interest savings account?
You can open a high-yield savings account at a brick-and-mortar bank or credit union or through an online bank. Here’s what to look for when weighing your options:
- High-interest rates: Look for a higher APY than regular savings accounts, ideally 0.50% or more. Online banks can generally offer higher interest rates because of their lower overhead costs.
- Low service charges: Avoid monthly maintenance fees, transfer fees, or penalties for overdrafts or returned deposits by reading the fine print. Banks and credit unions may also charge a fee for wire transfers or excessive monthly withdrawals. The best high-yield savings accounts don’t charge monthly fees.
- No or low minimum balance requirement: Look for an account that does not require you to maintain a certain balance. While you ideally want to keep as much money in your high-interest savings account as possible, it’s nice to know you won’t be charged a fee if you empty the account to cover an emergency.
- Opening deposit requirements: Choose an account that allows a lower opening deposit, especially if you aren’t starting with a lot of money. You may have to deposit a larger amount to earn the maximum APY offered on the account.
- Deposit insurance: Go with a bank account that’s insured by the FDIC. If you decide to open a high-yield account with a credit union, check that it’s insured by the National Credit Union Administration (NCUA).
- User-friendly features: Look for additional features that will make life easier, like 24/7 customer support, automatic savings features, and a highly rated mobile app.
Should I open a high-yield savings account?
A high-yield savings account offers a lot of financial benefits without many drawbacks. Consider opening a high-interest savings account if you don’t currently have a savings account to grow your money.
Even if you have a regular savings account, see how much interest it’s earning. Major banks, for example, pay out interest rates as low as 0.01%.³ If your current savings account isn’t making you much money, take the time to research some of the best high-yield savings accounts available – and make the switch.
Note: Online banks are more likely to offer high-yield savings accounts than traditional banks.4 If you prefer the familiar brick-and-mortar experience, your options may be more limited.
FAQs
Are high-yield savings accounts safe?
High-yield savings accounts are a safe place to store your money. These accounts are typically federally insured up to $250,000 per depositor, through either the FDIC (at banks) or NCUA (at credit unions). This means that even if the financial institution fails, the government guarantees that your money is safe and available.
Make sure an account offers this insurance before opening. You should also check out a bank’s mobile app features. Look for an app with two-factor or fingerprint authentication; some apps even allow you to get instant transaction alerts to stop fraud as soon as it starts.
How do I open a high-yield savings account?
Depending on the financial institution, you can open an account online or in person. You’ll need to provide your Social Security number, contact information, and at least one form of identification, such as a driver’s license or passport. You might also be required to deposit money into the new account immediately.
What are some alternatives to a high-yield savings account?
High-yield savings accounts are a great way to earn interest on money that you can still easily access when needed. But if you’re comfortable making your money a little less liquid (that is, harder to access without penalties), there are some higher-interest alternatives.
For long-term goals, consider some of these high-yield savings account alternatives:
- Certificate of deposit (CD)
- 401(k)
- Individual retirement account (IRA)
- Money market accounts
Checking account vs. savings account: What's the difference?
What’s the difference between a checking and savings account? Both are financial products that make managing your money easier, but the way you use each is unique.
Checking accounts don’t generally earn interest, but they enable you to spend your money on everyday purchases, whether by using a debit card, mobile wallet, peer-to-peer payment app, or paper check. On the flip side, you can use a savings account to grow your money for specific goals over time. These accounts usually pay interest.
Both checking and savings accounts are generally insured – and each is an essential part of your overall money management.
How does a savings account work?
A savings account allows consumers to store money with a financial institution. These accounts are usually insured by the FDIC or NCUA up to $250,000 and typically pay interest on the funds you keep in the account.
What is the best high-interest savings account?
To find the best high-yield savings account for your needs, look for high APYs, low monthly fees, and easy-to-use mobile banking features. Banks and credit unions regularly change their APYs, so it’s hard to name the single best savings account – but the Chime High-Yield Saving Account is worth your consideration. It earn a high APY, has no monthly fees,5 and makes it easy to automate your savings with Round Ups and Save When I Get Paid.6
How much should I have in savings?
How much money you should have in your savings account depends on your specific savings goals, your income, monthly expenses, and outstanding debts. If you’re able, build an emergency fund that could cover your monthly expenses (what you need to survive) for three to six months.
After you’ve built your emergency savings, determine if you’d rather save toward other goals (a house, car, vacation, wedding, etc.), pay down debts, or even invest in retirement.
And remember: An emergency fund doesn’t appear overnight. Every little contribution helps!
Open a high-yield savings account with Chime
A high-yield savings account enables you to earn high interest on your money while still having access to it. The Chime High-Yield Savings Account, for example, earns a high APY, is backed by FDIC insurance, and includes unique automatic savings tools like Round Ups and Save When I Get Paid.4
Ready to put your savings to work? Open a Chime High-Yield Savings Account and watch those dollars grow.
