What is a high-yield savings account?


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If you have some extra cash, you don’t want to let it pile up in your checking account. While your money would be easy to access, it would mostly just sit in your checking account doing nothing.

When you have extra money, you want that money to be working for you. One of the best things is to put some money in a high-yield savings account. This move will keep your money safe and let you earn interest on the balance of the account.

How does a high-yield savings account work?

A high-yield savings account is like a normal savings account. The feature that sets a high-yield savings account apart from the competition is that it pays a higher rate of interest on your savings.

These days, you’re lucky to find a traditional savings account paying more than 0.05 percent or so in interest. Right now, the best high-yield savings accounts are paying around ten times more (or 0.5 percent), which makes them a better place to store your money if you want to grow your savings. In this scenario, if you put $1,000 into a high-yield savings account, you’d collect $50 in interest at the end of a year rather than $5 that you would collect in a traditional savings account.

Best uses for a high-yield savings account

One of the best ways to use a high-yield savings account is to store your emergency fund in it because the account protects your money. If you make regular deposits to a high-yield savings account instead of investing all of your money, you don’t have to worry about a market drop wiping out your savings and pushing back your goal, for example.

High-yield savings accounts are also a good way to save for short-term goals. If you want to do something in the next few months, such as go on vacation, you don’t want to put your money into risky investments like stocks. If the market drops, you’ll lose your vacation fund.

Walter Russell, CEO and president of Russell and Associates, recommends high-yield savings accounts as a good place to store windfalls. “If you get a windfall, like a stimulus check or other money, you can keep it in a high-yield savings account while you figure out what to do with it,” Russell says.

Craig Bailey, president of Green Financial Solutions, recommends keeping your high-yield savings account with a different institution than where you have your checking account.

“This will prevent you from impulsively transferring money from savings to checking,”  Bailey says.

Disadvantages of high-yield savings accounts

High-yield savings accounts aren’t perfect for every situation.

Even accounts with great interest rates aren’t the best place to store money for the long term. You’ll be lucky to find an account that pays enough interest for your savings to keep up with inflation. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds are likely to be a better choice.

Another drawback of high-yield savings accounts is that banks can make them more difficult to open than a typical savings account. For example, you might need to have a larger deposit to qualify to open the account at certain banks.

High-yield savings accounts held at different institutions from your checking account provider can make accessing your money harder, too.

“It can take more time to get your money out of the account, especially if you hold your money at a different bank than your main checking account,” Russell says. “In that case, it can take a couple of days to transfer funds to your checking account, where it’s easy to access.”

Can you lose money in a high-yield savings account?

Like other savings accounts offered by banks, high-yield savings accounts are protected by the Federal Deposit Insurance Corp., which means you’ll receive up to $250,000 in protection per account holder at the bank if it fails. If your bank, for some reason, can’t return the money you’ve deposited in the high-yield savings account, the FDIC will reimburse you for the loss.

What to look for in a high-yield savings account

When you’re comparing high-yield savings accounts, there are two features that you want to look at: annual percentage yield and fees.

APYs are the primary reason to open a high-yield savings account, so you want to find the account that pays the highest rate of interest that also suits your needs.

Some banks charge monthly fees on their savings accounts. Usually, you can avoid these fees by meeting certain requirements, such as maintaining a minimum balance or making a minimum deposit each month.

The last thing that you want is for your savings to get eaten away by fees. If possible, look for an high-yield savings account that doesn’t charge monthly fees. If you have to go with an account that charges fees, make sure that you can easily meet the fee waiver requirements each month.

Top Savings Accounts

If you’re considering opening a high-yield savings account, these are some of the top options.


Chime is a newer digital brand that offers a checking account and savings account.

Its savings account pays a competitive rate and does not charge monthly fees or require a minimum balance, making it a good choice for people who want an easy-to-open bank account.

Ally Bank

Ally is an established online bank that offers a full set of financial services, including banking, lending and investing.

Its savings account pays a solid interest rate, with no monthly fee and no minimum balance. If you’re thinking about transitioning fully to online banking, Ally is a great option to consider.

Live Oak Bank

Live Oak Bank is an online bank that consistently offers some of the best interest rates on the market. There is no minimum balance and no monthly fees for its savings accounts, so anyone can take advantage of its great rates.

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