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With a high-yield savings account, you can safely save for emergencies or other long-term financial goals.
Here’s what you should know about high-yield savings accounts:
- Compare high-yield savings accounts
- Who should get a high-yield savings account?
- What to look for in a high-yield savings account
Compare high-yield savings accounts
If you’re not sure where to start, here are several options for high-yield savings accounts. Keep in mind that none of these accounts require you to maintain a monthly balance nor do they charge monthly maintenance fees.
The options in the table below are Credible partners:
What is a high-yield savings account?
A high-yield savings account is a type of savings account that typically offers above-average interest rates. The national average interest rate on standard savings accounts is only 0.05%.* But with a high-yield savings account, you could get a much higher rate of return.
This higher interest rate can make a high-yield savings account ideal if you’re saving for an emergency fund, vacation, new car, down payment, and more.
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*National average accurate as of September 2020 and is subject to change.
Depending on the bank, a high-yield savings account will likely be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor.
Also keep in mind that like other savings accounts, high-yield savings accounts are limited to six monthly withdrawals.
Pros of a high-yield savings account
- Higher interest rates than the average savings account
- FDIC or NCUA insurance protects your money
- Easy access to your funds
Cons of a high-yield savings account
- Many high-yield savings accounts are only available from online banks, meaning you won’t have access to a brick-and-mortar location
- Typically limited to six monthly withdrawals
- Lower return than you might get from other types of investments
Who should get a high-yield savings account?
Most of us could benefit from a high-yield savings account. It’s important to save for emergencies and other goals you might have — and if you’re saving anyway, you might as well get a higher interest rate with a high-yield savings account.
Keep in mind that it generally takes a month or more to see returns on a savings account. So if you’re planning to save money for a longer period of time, a high-yield savings account could be a good idea.
Once you’ve hit your savings goals, you might consider putting additional funds into investments. Just keep in mind that investing generally comes with some risk, while a high-yield savings account has little inherent risk to your money.
You likely won’t earn any interest with a checking account, but it will give you a place to set aside your money with easy access.
Check Out: What Is the Debt Snowball Method?
How to get a high-yield savings account
Opening a high-yield savings account — whether online or in-person — is a quick and easy process. Follow these steps to get started:
- Choose a high-yield savings account: Consider different options to see which one best meets your needs.
- Complete the account application: Plan on providing personal information such as your contact information. Your Social Security number is also typically required when you fill out the application. Unlike getting a loan, your credit score and history generally aren’t a factor for getting a new savings account.
- Fund your new account: To deposit money into your new account, you might be able to link to another bank account to transfer the funds online. Depending on the bank, other funding options might include mailing a check, depositing a check using the bank’s app, or a wire transfer.
Types of savings accounts
Depending on the bank or credit union you choose, you might have a few savings options to choose from on top of high-yield savings accounts.
Here are some commonly available types of savings accounts:
- Traditional savings accounts typically offer lower interest rates compared to other types of savings accounts. They might also have minimum balance requirements to avoid monthly service fees.
- High-yield savings accounts generally come with few or no fees as well as higher-than-average interest rates. Keep in mind that many high-yield savings accounts are only available from online banks, though there are some available from banks with brick-and-mortar branches.
- Certificates of deposit (CD) let you earn a higher interest rate by locking your funds away for a certain amount of time. Typically, the longer you lock up your money, the higher the interest rate you’ll earn. For example, you might place your funds in a CD for six months, a year, or even five years, depending on the type of CD you choose.
Learn More: Using the Debt Avalanche Method to Pay Off Debt
What to look for in a high-yield savings account
Here are a few things to keep in mind when considering a high-yield savings account:
- Annual percentage yield (APY): The APY on an account is how much you’ll earn in returns in one year. This is usually one of the most important factors to look at for a savings account.
- Minimum balance: Some banks require you to maintain a minimum balance to keep your high-yield savings account open. If your balance dips below this amount, you might be charged a fee. There are also several high-yield savings accounts available without minimum balance requirements — and with no fees.
- Compounding method: When your interest is compounded, it’s calculated and added to your account. Most savings accounts compound interest either daily or monthly (or both, in some cases). This might have a slight effect on how much interest you’ll earn.
- Ways to withdraw or deposit funds: Depending on the account, withdrawal and deposit options might include ATM access with an ATM card, online transfers, wire transfers, or mobile check deposits.
