In 2023, the Federal Reserve raised rates nationwide to combat high inflation and banks increased annual percentage yields. Rate increases were suspended on December 13, but they still remain high. This has led to some positive changes in interest rates across personal finance instruments.
Since interest rates are rising, now is a good time to open a high-yield savings account (sometimes referred to as a high-interest savings account). We’ve rounded up some of the best savings accounts through a list of federally insured banks below.
What is a High Yield Savings Account?
High-yield savings accounts (HYSA) are a type of deposit account offered by brick-and-mortar banks, neobanks (online banks without physical branches) as online savings accounts, and by state or federal credit unions. As with traditional savings accounts, HYSA account holders typically do not have debit card access or check writing privileges, but they may be able to transfer money between their HYSA and checking account with an ATM card or online.
HYSAs have some of the highest rates available when it comes to financial products, with some banks and financial institutions advertising APYs above 5%. A HYSA works similarly to a traditional savings account, except you can earn a lot more interest. In some cases, you can get an annual percentage yield (APY) 10 times higher than the national average savings account rate.
High-yield savings accounts typically have no minimum opening balance or monthly fees, although some banks may require you to maintain a certain minimum balance to earn interest or avoid monthly service fees.
Depending on the financial institution, you may earn the same rate regardless of your balance, or your APY may be tiered based on your balance.
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HYSA vs traditional savings account
Before opening an account, it is important to understand the different types of savings accounts. A HYSA is connected to an online financial institution that is not connected to a traditional bank or credit union, but the main difference compared to a traditional savings account is the interest rate. Savings account interest rates range from 0.01% to 0.35%, while high-yield online savings grow much higher. Fees, restrictions and minimum deposit requirements depend on the financial institution for both account types and both account types are FDIC insured. What you want from your bank account depends on your needs: Some people don’t want the high risk that comes with a HYSA.
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What is APY?
A high-yield savings account rate measures the simple interest, or interest earned, on the principal deposited in the account. APY is the rate of return earned on your savings account, including compound interest. Compound interest is the interest you earn on the money you deposit and the interest you earn on that money. Most savings accounts and CDs are compounded daily or monthly. The more often the interest is compounded, the faster your money will grow.
While HYSAs have some of the highest APYs available, those rates are variable. This means your bank or credit union can change your APY — your rate might be great when you first open the account and then gradually decline. Generally, APYs rise when the economy is doing well and the Federal Reserve raises its benchmark rate. Conversely, rates can fall when the economy weakens and the Fed lowers rates.
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Where should I open a high yield account?
You can open a high-yield savings account at a financial institution, local bank, or credit union (it may also be possible to open an account online without visiting a branch, but this may vary by institution). Accounts at traditional banks may be subject to higher or more frequent fees, which often go towards branch maintenance. You may also be subject to any monthly withdrawal limits set by your bank.
Because there is no physical location with overhead costs to pay, many online-only banks are able to offer HYSAs with higher APYs and often don’t charge service fees; Furthermore, you can easily open and manage your account completely online or with an app. Be sure to research which bank or banking offering is best for you.
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Benefits of High Yield Savings Accounts
Higher interest rates: You’ll generally earn more interest than you would with a traditional savings account.
Compound interest: Compound interest helps you grow your savings. With interest earned through a high interest rate, your savings will grow exponentially.
Accessibility: These accounts are a great place to stash your emergency funds, as your money remains accessible. Some accounts, such as certificates of deposit (CDs), offer high rates but impose penalties if you withdraw money earlier than expected when you open the account. Some accounts also offer ATM cards for easier access.
Minimal or no commissions: Fees with high-yield savings accounts are rare, so you won’t have to worry about the fees impacting your balance.
Low risk: High-yield savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), making them a low-risk option for your money. FDIC insurance (NCUA insurance for credit unions) is government-backed insurance on bank accounts up to $250,000, protecting your savings if your bank or credit union runs into financial trouble.
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Cons of High Yield Savings Accounts
Variable rates: Your savings account’s APY may increase or decrease over time. Although individual banks set rates, they are loosely tied to the Federal Reserve’s official interest rates. Banks may choose to reduce savings rates when the federal funds rate falls.
Minimum balance requirement: Some accounts may have a high minimum opening deposit.
Tiered APY: Some banks may have tiered APYs depending on the deposit amount. For example, you may earn a higher rate if you deposit $5,000 instead of $100. So, while a $5,000 deposit isn’t necessarily required, it could result in a better APY.
Best for short-term savings: High-yield savings accounts are not the best choice for long-term savings goals, such as retirement. Investment accounts tend to offer higher returns over the long term.
Withdrawal limits may apply: Depending on your bank, you may have a limit on monthly withdrawals.
Tips for finding the best high-yield savings account
Competitive rates are great, but considering other factors beyond APY can help you find an account that best meets your needs.
Offers for new accounts
See high-yield savings account offers for new depositors with high APYs, low or no account fees, and free to open.
High rates on savings accounts will earn you more interest, but the financial institution offering those rates may not necessarily be the best option for your finances, so do your research before opening an account.
Research applicable filing requirements. Is there a minimum initial deposit requirement? Do other deposit requirements apply? Are there tiered APYs depending on the deposit amount?
Some accounts may have monthly maintenance or other fees. Check what fees may apply before opening a new account.
Find out how you can access your money before opening a new account. For example, can you access an online dashboard? Does your bank have a mobile app? Is it connected to an ATM network?
Check the available deposit options. Are mobile check deposits through a mobile banking app an option? Is it possible to make direct deposits via ATM?
See if you can link your new account to an existing checking account at another bank. Make sure there are no restrictions or waiting periods when it comes to being able to access your money.
How to Open a High Yield Savings Account
Once you’ve determined the best rates for high-yield savings accounts — don’t forget to make sure you’re only looking at accounts from FDIC or NCUA member institutions — and found a high-yield savings account that works for you, opening one is simple and can be done in person or online. You will generally need to provide your personal information, proof of identity and an address to open a new account. Make sure you have your driver’s license, Social Security card or individual taxpayer identification number, and copies of a recent mortgage statement or utility bill.
Depending on your account, a minimum deposit amount may apply when you open your HYSA account. If so, you will also need to be prepared to transfer money from an existing account to meet the deposit requirements.