By Richard M. Simonds, Ed.D, MSW, BCC and Kelly R. Keith, LMSW
What is a High-Yield Savings Account?
A high-yield savings account offers a significantly higher interest rate than traditional savings accounts, typically several times higher that allows you to earn more from your deposits over time. Many high-yield savings accounts are online-only, and you can only deposit money by transferring funds from other accounts.
Benefits
- A high-yield interest rate means that your money grows fast. You can quickly build your emergency fund, save for future expenses, or reach other financial goals.
- An online-only account is often “out of sight, out of mind,” which encourages savings habits and reduces impulse withdrawals. When high-yield savings are in a separate account from the one used for daily expenses, you don’t see the available balance as often, and the account is left free to grow undisturbed. In addition, when the account balance grows more between check-ins, there’s extra motivation to help it continue getting bigger.
- Most high-yield savings accounts are offered by reputable banks and credit unions, insured by the Federal Deposit Insurance Corporation (FDIC) or similar organizations. Thus, they provide a low-risk option with a reliable interest rate, making this a great choice for people concerned about losing money through risky financial investments.
Considerations and Features
- High-yield savings accounts may or may not have extra fees for low balances, excessive withdrawals, or other activity. Review the details before opening any account.
- Online-only savings accounts often take 1–3 business days to clear funds for transfer. They are not recommended for everyday expenses, or other transactions that may need to be completed quickly.
- While high-yield savings accounts offer higher interest than traditional accounts, the rate is also more likely to fluctuate. It is essential to frequently evaluate whether an account is still the best place for your savings.
Comparison (with a traditional bank account)
Do you wonder if interest rates truly make a difference? Interest rates became notoriously low in the 2010s. Since 2022, however, rates have been rising again. And even low interest rates can matter greatly if you save for a long time.
Here is an example of the difference a high-yield interest rate can make: In August 2024, the national average for traditional savings accounts was .46% a year; for a typical high-yield savings account, it was 4.4%. Say you start an account with $100 and add $50 a month. After three years, a traditional account would earn $14 in interest, while a high-yield account would earn $132—nearly ten times as much.
High-Yield Savings Accounts: Options
(Disclaimer: While the authors of this article have high-yield accounts at some of the institutions highlighted below, we are not endorsing one account over another, nor will anyone receive any compensation or benefit for mentioning any account.)
Below is a sample list of high-yield savings accounts that are FDIC-insured and have no account fees. We recommend you research each option personally, to decide which is right for you.
- Smartypig by Sallie Mae Bank has great goal-setting and goal-tracking features. With a user-friendly interface and competitive rates, this account offers much in flexibility and savings.
- Marcus by Goldman Sachs has a mobile app for straightforward account management. The parent company (Goldman Sachs) also has additional platforms if you want to expand your banking options.
- Capital One 360 Performance Savings provides all the benefits of an online high-yield savings account, plus in-person access at Capital One banks and Cafés.
- SoFi includes a checking account to complement your savings account, plus direct deposit services (required to earn a competitive interest rate).
Is a High-Yield Savings Account Right for Me?
Before making your final decision on a high-yield savings account, ask yourself:
- Will my current savings or checking account (if any) allow me to transfer money without penalty or fee?
- Will I be comfortable with an online-only account? (This means doing without any physical branch location, and often without ATMs that allow quick access to funds.)
- If I get into a financial jam, will I still have emergency savings I can access right away?
If you answered yes to all these questions, we recommend considering a high-yield savings account to help reach your financial goals.
Conclusion
High-yield savings accounts offer a compelling opportunity to grow your savings, with attractive interest rates and minimal fees. However, it’s essential to carefully evaluate interest rates, access to funds, and individual account features to ensure that the account you choose aligns with your financial goals. Invest some time in researching and learning, and you’ll soon be able to make an informed decision that enhances your personal savings strategy.