What Is a High-Yield Savings Account?

Whether you are starting an emergency fund or just planning for retirement, how you save is almost as important as why you save. One of the simplest and safest ways to let your money earn more is by opening a high-yield savings account. Keep reading to learn more about high-yield savings accounts, and find out if they’re a good choice to grow your money.

Read: How to Guard Your Wealth From a Potential Banking Crisis With Gold

What Is a High-Yield Savings Account?

As the name suggests, a high-yield savings account is considered to be a high-interest savings account. This type of savings account gives you much more bang for the buck as the interest earned is higher than the national average for a standard savings account.

You can find high-yield savings accounts at all types of financial institutions, including traditional banks, online banks and credit unions. But online banks tend to have the best rates because they have lower overhead than other financial institutions, allowing them to offer higher APY on their accounts. Keep this in mind when looking to open an account.

High-Yield Savings Accounts: What To Know

The main thing to consider before opening a high-yield savings account is whether it meets your personal financial needs. You’ll also be looking for an account that offers high-interest rates, otherwise, it defeats the purpose of looking for a high-yield savings account in the first place. Beyond that, you might value other features as well. Here are a few to consider.

• Federally insured: The best way to protect your money is to find a high-yield savings account at a bank or credit union that is protected by the Federal Deposit Insurance Corporation or National Credit Union Administration.

• Fee structure: A great interest rate isn’t so great if your return is eaten up by high fees, so do your homework and look for a savings account with no or low monthly maintenance and other fees.

• Customer reviews: Take the time to find out what other customers have to say about the financial institution’s customer service, technology, products and features.

• Minimum balance requirements: If the account has minimum balance requirements, your balance either has to meet those requirements during each statement cycle or you’ll owe a fee. Online banks usually don’t have minimum balance requirements.

• Initial deposit requirements: It is also important to find out the initial deposit requirement. The lower the initial deposit requirement, the better.

• Monthly transaction limit: Many bank accounts limit the number of monthly transactions you can make from an account, which can sometimes determine if you’re eligible to have monthly maintenance fees waived. You need to be aware of how many deposits or withdrawals you can make each month.

• Access to digital banking: If you like to bank on the go, choose an account with mobile and online banking. Nowadays, it’s hard to find one without it.

High-Yield Savings Accounts With the Best Rates

Because the main point of a high-yield savings account is to get the best return for your money, you’ll want to compare rates at different banks to ensure you find one that’s competitive with the rest of the field. Here’s a list of banks that have consistently offered some of the highest rates when compared to leading competitors. Keep in mind that rates are subject to change, and might involve meeting certain requirements.

Are High-Yield Savings Accounts Worth It?

High-yield savings accounts may be best for you if you are comfortable with digital-only banking and need extra incentive to save more — the all-mobile Varo Bank Savings Account has a tiered APY program that offers higher rates if you meet certain requirements. If you value free and flexible accounts, Discover and Marcus by Goldman Sachs both feature no monthly service fees or minimum deposit requirements. Once you’ve prioritized what you want from a high-yield savings account, keep in mind other factors.

If you want an account that offers quick and easy access to your money, the Synchrony Bank High Yield Savings account lets you access your funds with an ATM card, wire transfer or electronic transfer. The Ally Online Savings Account is a good choice if you want to do your banking in one place because account holders can also open a checking account.

Final Take

When you consider a high-yield savings account in comparison to a traditional savings account, they ultimately function in the same way. They are both deposit accounts that let you earn interest on your money and are typically used by customers saving for a home down payment, an emergency fund, a dream vacation or some other financial goal. If you are looking to start a savings account and know you can leave it alone for a while, a high-yield savings account might be the right choice.

FAQ

Here are the answers to some of the most frequently asked questions about high-yield savings accounts.

• How does high-yield saving account work?

  • A high-yield savings account works by giving you a higher interest rate than a standard savings account. This allows your money to grow more quickly as the APY adds up.

• Is a high-yield savings account a good idea?

  • Yes, high-yield savings accounts are a good idea if it meets your financial needs and you are looking for an account with high-interest rates. However, be aware that these accounts often come with minimum balance requirements or fees.

• What are the disadvantages of high-yield savings accounts?

  • Some common disadvantages of high-yield savings accounts may include the following:

    • -Limited transfers and withdrawals

    • -There may be better higher-return investments

    • -There are often fees or minimum balance requirements

• Can you withdraw money from a high-yield savings account?

  • Yes, federal law mandates that you are allowed to withdraw money from your high-yield savings account up to six times per month without penalty.

Vance Cariaga contributed to the reporting for this article.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of March 31, 2023.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

This article originally appeared on GOBankingRates.com: What Is a High-Yield Savings Account?