Whether you're just starting out or are already a multi-millionaire, a high-yield savings account with rates up to 2.20% APY can help you:
- Make your money work for you while your sleep.
- Reach your savings goals faster.
- Manage risk: Enjoy guaranteed returns while keeping pace with inflation.
See today's top high-yield savings account rates
What is a high-yield savings account?
- How high-yield savings accounts grow your money faster
- 3 critical factors to consider before choosing an account
- What situations are ideal for high-yield savings accounts
A high-yield savings account is just another name for a “high-interest” savings account.
Think of a high-yield savings account as a typical savings account, but on steroids. The national savings rate averages published by the FDIC reveals that, on average, U.S. banks pay a paltry tenth of a percent interest on savings accounts. To put that in perspective, you would need to deposit $100,000 just to earn $100 in interest per year. In comparison, high-yield savings accounts can pay over 10x that amount. Many range from 1.50% to 2.25% APY as of the time of this writing, although rates change regularly depending on the benchmark rate set by the Federal Reserve and market competition.
Wait, what does ‘APY’ mean?
APY stands for annual percentage yield. It’s the return that you can expect to receive over a one-year time-frame based on the interest rate and compounded interest of the account. (Use our monthly compound interest calculator to see how your money earns more over time, even at a fixed yield.)
Example: if you place $1,000 into a high-yield savings account that has a 2.00% APY, and you leave it alone for one year and don’t make any other deposits, you’ll earn $20 on that $1,000 in its first year.
The most important thing to know is the higher the APY, the better your returns and the more money you earn for doing nothing more than keeping your savings parked in a better account. (Our savings goal calculator can help you determine how quickly you'll be able to reach your desired savings amount, based on APY and savings deposits.)
To illustrate this point, let’s look at a few examples: you deposit $1,000 into an account where interest compounds on a daily basis and leave it there for three years, without making any other deposits.
- At 0.10% APY (the national average reported by the FDIC), the balance would be $1,003.05.
- At 1.75% APY (a reasonable APY for most high-yield savings accounts), the balance would be $1,054.67.
- At 2.15% APY (a reasonable APY for the best high-yield savings accounts), the balance would be $1,067.58.
As you can see, sticking with the national average of 0.10% APY can hurt over the long term. While a $50 or $60 difference in one year doesn’t seem like much to write home about, the compound effect over many years can make a huge difference. Additionally, you'll likely add to your savings account periodically, which will further widen that gap making a high-yield savings account even more valuable.
So let's look at the same example, except this time, we'll assume that you add $100 to your account every month over those three years:
- At 0.10% APY, the balance would be $4,608.41.
- At 1.75% APY, the balance would be $4,750.13.
- At 2.15% APY, the balance would be $4,785.34.
The difference in how much money you make has now grown to $142 and $177 respectively… just for choosing a higher yielding account. Who wouldn't want that extra money?
Check out your choices for best high-yield savings accounts on this page to see how much you can make. There’s no reason to leave that extra money on the table.
What banks typically offer the best high-yield savings accounts?
There is no shortage of high-yield savings accounts offered across the board, but the ones with the highest APYs will likely be offered by online banks.
Why? Since online banks don’t have the overhead that brick-and-mortar banks do, they’re able to keep costs down so you get to benefit from those savings.
If you’re not familiar with online banking, or if you’re hesitant to do your banking on the computer because of security concerns, know that using an online bank has a history of being very secure, and banks have taken many precautions to prevent fraud.
Online banks are still insured by the FDIC, same as brick-and-mortar banks, and they’re typically ahead of brick-and-mortar banks when it comes to technology. Their mobile websites and applications tend to be more user-friendly, and they all employ various levels of secure encryption.
Not only that, but you can set up alerts so that you’re notified of suspicious account activity if it's ever detected.
Online banking has many other convenient benefits, which typically include 24/7 support, 24/7 access to your accounts, no or low fees, and higher APYs.
Why should you use a high-yield savings account?
A high-yield savings account is best used for savings goals you’re hoping to hit in three to five years. While there’s technically no downside to using it for short-term goals, the less time your money spends in the account, the less time interest has to accrue.
Some of the best uses for a high-yield savings account include:
- Emergency fund
- Down-payment savings
- Dream vacations
- Car savings
- Home repairs
- Wedding + honeymoon savings
A high-yield savings account is the perfect tool for these goals because the higher APY accelerates the growth of your savings so it takes less time to reach your savings goal. Given that many of these goals involve large sums of money which will take years to accumulate, the accelerated pace is welcome.
What’s great about this type of account is that it can supplement your regular checking and savings accounts. So unless you’re in the market for a brand new savings account, you don’t need to replace your old savings account with a high-yield account. Instead, you can link the high-yield savings account to your existing checking account for easy transfers.
High-yield savings accounts are also a great place to keep emergency funds. With an online bank, you can transfer your funds at any time – you don’t have to wait or make a trip to the bank to withdraw the money – but there’s still enough of a barrier in place to prevent you from spending your savings foolishly (if that’s a concern).
You should consider opening a high-yield savings account if:
- You’re stuck with an abysmally low APY on your current savings account.
- You only have a checking account and you’re looking for a high-powered savings account.
- You’d like a supplemental savings account for some of your longer-term financial goals.
- You just want to take advantage of higher interest rates so you earn more and save faster.
When shouldn’t you use a high-yield savings account?
As we reviewed, high-yield savings accounts make sense for three to five year savings goals, but they don’t make the most sense for longer term goals such as retirement. For those longer goals, you should look at retirement accounts such as 401(k)s and IRAs, or brokerage accounts.
Additionally, as is the case with the majority of savings accounts, you’re limited to six transactions per month. If you need frequent access to your savings, then a high-yield savings account isn't the best choice.
Lastly, if you’re not 100% comfortable with online banking, you may not find a bank that offers high enough APYs or low to no fees, which would negate the benefits normally enjoyed from high-yield savings accounts.
What’s important when deciding on a high-yield savings account?
There are a few factors you’ll want to consider as you sort through the various high-yield savings account choices.
As you might expect, the APY will be a big factor when deciding on a high-yield savings account. The higher the APY, the faster your money will grow.
But that’s not where your decision should stop. There are other important factors to consider, such as…
#1: Fees and minimums
Besides the APY, you must take note of any fees associated with the account, as they may be high enough to negate the benefits of the higher APY.
While most high-yield savings accounts offered by online banks rarely include fees (and if they do, they tend to be lower), it’s always a good idea to read the fine print, especially if you’re looking at the offerings from brick-and-mortar banks.
What kind of fees should you look for? The most common fee is called a monthly maintenance fee, which is typically charged if your account dips below a required minimum balance.
For example, a bank may require that you keep a minimum of $1,000 in your account to waive the monthly maintenance fee. So if your account drops under $1,000, you might get hit with a $10 maintenance fee for the month in which your balance is low.
In addition to this, some accounts involve tiers of balances, where each tier has a different APY. For example:
- $0 – $5,000: 1.80% APY
- $5,000 – $10,000: 2.00% APY
- $10,000+: 2.25% APY
If you have a large sum of money that you’ll be keeping in your account, this may not be an issue, but if you’re just starting to save then reading the fine print will help you avoid surprises here.
Another thing to watch out for is a minimum opening balance: how much money you’ll need to deposit into the account to open it.
What kind of minimums might you see? These vary across the board. If not $0, a common minimum opening deposit is $100.
Here are a few example scenarios to help you think through your decision:
Example 1: If one bank has a 2.00% APY with a $10 monthly maintenance fee, and another bank has a 1.80% APY with no fees, the latter may be your best bet on smaller balances and the former would be your best account choice on larger balances.
Example 2: If a bank offers a 2.00% APY but has a $1,000 minimum balance required to open and maintain that APY, and another bank offers a 1.80% APY with no minimums, the latter will be better for those who have just started saving, or don’t want to worry about keeping a minimum balance in the account.
In the end, it comes down to your personal situation and how much you plan to keep and save in your account.
#2: How interest is compounded
Another factor to consider is how the APY is compounded.
If you’re unfamiliar with the concept of compounding interest, it occurs when interest is added to your initial deposit, which results in interest earning interest. We offer a calculator with a more in-depth explanation here.
APYs can compound on a daily, monthly, quarterly, or yearly basis. Here’s an illustrative example:
Imagine that you have a starting balance of $1,000 and you deposit $100 into your 2.00% APY high-yield savings account on a monthly basis for one year.
- If the account compounds daily, the balance at the end of year one will be $2,233.34.
- If the account compounds monthly, the balance at the end of year one will be $2,233.26.
- If the account compounds quarterly, the balance at the end of year one will be $2,233.21.
- If the account compounds yearly, the balance at the end of year one will be $2,233.00.
As you can see, there’s a slight difference in the amounts across the board, so the compounding interval isn't the biggest deal, but it’s worth knowing before signing up.
Note that how much money you plan to contribute on a monthly basis will widen this gap, so if you're torn between different compounding options, do the math yourself to see the difference your contributions will make.
#3: Bank longevity and reliability
One last thing to pay attention to is the credibility of the bank. Unfortunately, some banks advertise high APYs to get people to sign up and bank with them, only to turn around a few months later and lower the APY.
Do your due diligence on the bank you're considering opening an account with. Make sure that they've had high APYs for a few years to avoid getting stuck with a crummy APY later on. You don’t want to have to look for another bank year after year.
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What are the differences between a high-yield savings account and other accounts, like CDs and Money Market Accounts?
In case you’re still wondering if a high-yield savings account is a good fit for your financial situation, let’s review alternative savings solutions.
Money Market Accounts are similar to normal savings accounts, but they offer additional features you don’t typically find, like the ability to write checks and obtain a debit card linked to the account.
However, Money Market Accounts have slightly lower interest rates when compared to high-yield savings accounts, so if you have a checking account or don’t need a debit card for your savings account, these features might not be worthwhile for you.
CDs (certificates of deposit) don’t offer the liquidity that savings accounts and Money Market Accounts do. Instead, they have fixed maturity dates, upon which the initial amount deposited and interest accrued become available for withdrawal.
CDs are good for funds that you can afford to have tied up for longer periods of time, as you may be penalized if you withdraw the funds earlier than the maturity date. The length of maturity is indicated in the name of the CD: 1-year, 5-year, etc.
CDs tend to have the highest APYs, but their rules and illiquidity can be a drawback, depending on your situation and savings goals.
» More: Check today's best CD rates
Both CDs and Money Market Accounts are insured, so you won't end with less money than you started with.
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