What is a high yield savings account?

Definition of high yield savings account

A high yield savings account is the same as a standard savings account but pays a much higher return on your money.

The national average yield on savings accounts is 0.06%. However, you can find high yield savings accounts that earn up to 0.60%.

When you build your savings, you want that money to generate a competitive return. Placing your savings in a high yield savings account will keep your money safe and allow you to earn interest on the account balance.

The Best Uses of a High Yield Savings Account

  • Emergency fund: One of the best ways to use a high yield savings account is to use it for your emergency fund. If you make regular deposits into a high yield savings account instead of investing all your money, you don’t have to worry about a market downturn wiping out your savings and pushing back your goal, for example.
  • Short-term savings goals: High-yield savings accounts are also a good way to save for short-term goals, like saving for a vacation or a car. If you want to pay something over the next few months, you don’t want to invest your money in risky investments like stocks. If the market goes down, you will lose your vacation fund.
  • To park your windfall: High yield savings accounts are also a good place to store windfall gains, such as stimulus checks or other payments. You can save the windfall on your high yield savings account until you decide what to do with the money.

Disadvantages of High Yield Savings Accounts

  • Bad options for long term goals: While high yield savings accounts have high returns compared to standard savings accounts, they don’t earn enough interest to meet long-term savings goals or even 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 probably a better choice.
  • May have more stringent requirements: High yield savings accounts may have more stringent requirements than a traditional savings account. For example, you may need to have a larger deposit to be able to open an account with some banks.
  • Can be a little more difficult to access your money: High yield savings accounts held at different institutions from your checking account provider can also make accessing your money more difficult. For example, transferring funds to your checking account may take a few days. In addition, you are limited to six withdrawals per month from your savings account due to Regulation D.

Can You Lose Money in a High Yield Savings Account?

Like other savings accounts, high yield savings accounts are protected by the Federal Deposit Insurance Corp. (FDIC), which means you will receive up to $ 250,000 in protection per account holder at the bank in the event of failure. If your bank for some reason cannot refund the money you deposited into the high yield savings account, the FDIC will reimburse you for the loss.

However, your savings can lose purchasing power over time due to inflation. For example, if your high yield savings account pays 0.5% and the annual inflation rate is 2%, your money has lost 1.5% of its purchasing power.

What to look for in a high yield savings account

When comparing high yield savings accounts, there are two things to consider: annual percentage return and fees.

  • Annual percentage return: APYs are the main reason to open a high yield savings account, so you want to find the account that pays a high interest rate. These days, a competitive high yield savings account earns at least 0.5%.
  • Costs: Some banks charge monthly fees from their savings accounts. Usually, you can avoid these fees if you meet certain conditions, such as maintaining a minimum balance or making a minimum deposit each month. If possible, look for a high yield savings account that doesn’t charge a monthly fee. If you must use an account that charges a fee, make sure that you can easily meet the fee waiver requirements each month.

The best savings accounts

If you are considering opening a high yield savings account, here are some of the best options.

Allied bank

Ally is a well-established online bank that offers a full suite of financial services, including banking, loans, and investments.

His savings account pays a competitive interest rate, with no monthly fees and no minimum balance. If you are considering a complete transition to online banking, Ally is a great option to consider. Bankrate named Ally Bank the best online bank of 2021.

Bank of live oaks

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


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

Its savings account pays a competitive rate and doesn’t charge a monthly fee or minimum balance, making it a good choice for people who want an easy-to-open bank account.

Comenity Direct

Comenity Direct is an online bank that offers a high yield savings account and CDs. The savings account pays a competitive APY and no minimum balance is required to earn the APY or avoid charges.

Marcus by Goldman Sachs

Marcus is an online bank that offers savings account and CDs, as well as investment and loan products. The bank’s savings account offers a competitive APY and no minimum balance is required to earn the APY or avoid charges.

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