What's the deal with high-yield savings accounts?
If you're interested in becoming a more successful saver, then it's time to consider opening a high-yield savings account (HYSA). If this is new to you, let us break it down.
An HYSA is a savings account that you open through a bank that typically pays a higher interest rate on deposits than regular savings accounts. These accounts are also known as high-interest savings accounts.
High-yield savings can simplify the savings process and help you reach your goals in less time because you're making money via interest on the money that is just sitting in the account. Yes, really. Monday-Friday, your money is making money. Cha-ching!!
HYSAs can help you reach your emergency fund goals faster, but they can also be used for other fun short-term saving goals like a vacation with your bestie, a big purchase, or even quitting your job.
Another reason to consider a HYSA is if you just don't like the idea of your money sitting inside of an account doing nothing. Make it work for you.
Table of Contents
- Why Open a High-Yield Savings Account?
- The Best High-Yield Savings Accounts
- 5 Benefits of a High-Yield Savings Account
- How to Open a High-Yield Savings Account
- What to Watch Out For When Opening a HYSA
- How Much Can You Save With a HYSA?
Why Open a High-Yield Savings Account?
Whether you have something specific you're saving for or simply want to earn more on the money you're already putting aside, an HYSA lets you speed up the rate at which you grow your savings.
In addition to the interest that you're earning on your money, an HYSA also makes it easy for you to withdraw the funds if you suddenly need it vs. a CD, money market account, or retirement account—all of which require longer-term commitments when you withdraw.
Plus, many banks offer you the option to make automatic transfers, ATM card access, overdraft protection, and more with a high-yield savings account.
And there's no need to worry. If you pick an FDIC-insured institution, HYSAs are insured for up to $250,000. The options we share below and most major banks have FDIC insurance but it's always smart to double-check!
Oh! Just in case you didn't know, FDIC = Federal Deposit Insurance Corporation.
When you're working to increase your savings efforts, higher interest rates can help your money make more of an impact in less time. Sounds like a win-win to us!
The Best High-Yield Savings Accounts
When looking at options for the best savings accounts, try to pick a high-yield savings account that allows you to combine balances across all your eligible accounts, like checking or CDs.
Some things to keep top of mind when selecting a high-yield savings account are:
- Overall interest rate/annual percentage yield
- What are the requirements for opening a HYSA? Do they require a minimum deposit?
- What's needed to maintain the account? Do they require you to keep an ongoing minimum balance?
- Are there fees for withdrawals, transfers, or dropping below a minimum balance? How will you know?
- Will it be easy to withdraw, including at ATMs, physical banks, and/or online options?
- Can you set up an automatic deposit and overdraft protection?
Some of the Best HYSAs to Consider
If you're serious about opening a high-yield savings account, these are a few options* that come highly recommended by the pros at NerdWallet. Make sure to do your research on any bank account before opening them. Google reviews for banks and specific accounts and check out the personal finance subreddit.
*As of February 2024, these were the most recommended HYSAs, and they are subject to change and updates.
5 Benefits of a High-Yield Savings Account
1. Accessibility
High-Yield Savings Accounts are accessible—meaning that almost anyone at any financial level can open one. Some HYSAs don't require minimum deposits or automatic transfers either.
One thing you will want to take into consideration is if the HYSA has any monthly maintenance fees. This is especially important when opening a savings account with a lower amount of money.
We'll get more into this later, but make sure any maintenance fees aren't going to undermine the money you could save in the first place—or cause you to incur overdraft fees.
Additionally, they are fast and easy to open with the option to open using online banks. No in-person visits to brick-and-mortar banks are required.
Also, you can open your HYSA in a different account so it's separate from your other funds—like the checking account attached to your debit card. It's fun to watch your HYSA grow in that account, too!
2. Year Over Year Growth
As we mentioned before, HYSAs are great because your money will earn interest just sitting in the account. This means you'll see year over year growth thanks to compounding interest without you having to lift a finger. This also means the sooner you open it, the better.
3. Limited Withdrawals
You can also see this as a negative, but if you are dedicated to actually saving the money, this is a good thing. Use your HYSA to store your emergency fund or long-term savings.
4. No Expert Knowledge is Necessary
Entry-level knowledge is A-OK! We tested this theory out and opened a high-interest savings account with an online bank in just a few minutes.
5. Set It and Forget It: Direct Deposit
Once you set it up, let it go and grow your money by setting up direct deposits. Every time your paycheck hits your account, schedule a portion of that to go directly to your HYSA. You'll forget you ever had the money to begin with while it compounds.
How to Open a High-Yield Savings Account
The following steps will help you to be thoughtful when considering the HYSA that works for you, your goals, and your needs.
Step 1: Identify the account and bank that meets your needs.
Step 2: Follow the online steps for opening an account on the bank's website or go visit one of their branches in person.
Step 3: The online application process will take about 15- 20 minutes to complete and you will need to be at least 18 years of age and a US citizen to apply at most banks. Be prepared with your physical U.S. address and social security number ready to input.
Step 4: Decide if you want paper or online statements.
Step 5: Make your first transaction by moving money into your new account.
Step 2: Follow the online steps for opening an account on the bank's website or go visit one of their branches in person.
Step 3: The online application process will take about 15- 20 minutes to complete and you will need to be at least 18 years of age and a US citizen to apply at most banks. Be prepared with your physical U.S. address and social security number ready to input.
Step 4: Decide if you want paper or online statements.
Step 5: Make your first transaction by moving money into your new account.
It's that simple to start turning your regular savings into an interest-earning machine for you.
What to Watch Out For When Opening a HYSA
As with almost any financial decision, there are pros and cons to opening a high-yield savings account. We've laid out a few of the biggest things to consider when opening this type of account.
Minimum Balance Requirements
As we mentioned earlier, some banks will require you to keep a minimum balance and if you fall below that you could pay fees. Do your research and set yourself up for success by keeping your balance above the minimum threshold—or by setting up overdraft protection in case a charge takes your balance lower than needed.
Pro Tip: If you're "not quite there" in terms of a minimum balance, start by saving money with the intent to open an HYSA once you have the minimum balance (plus some protective funds to cover any maintenance fees) required.
Interest Rates + Annual Percentage Yield
Sometimes, interest rates for high-yield savings accounts will be higher than regular savings accounts. However, other times the difference is less significant. The best HYSA accounts are typically those with higher interest rates and low or no fees.
This matters because the annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest. So, the higher the interest you can make on your money, the more it will compound and the higher your APY will be. This is a good thing because the account balance gets a little bigger, so the interest paid on the balance gets bigger as well.
Maintenance Fees
Yes, some banks will indeed charge you a small "maintenance fee" while you keep your money with them and earn the interest rate they have set. Do your homework before you put your money into an account with these fees, and make sure you're comfortable with that.
How Much Can You Save With Your HYSA?
Let's see an example of putting your money into a HYSA and seeing what can happen. Let's pretend you put an initial deposit of $5,000 into an HYSA that offers 0.50% APY.
And each month you set up a direct deposit of $100. Here's what your initial $5,000 deposit could grow into:
Year 1 National Rate: $3
Year 1: Interest Earned: $28
Year 2 National Rate: $7
Year 2: Interest Earned: $62
Year 3 National Rate: $12
Year 3: Interest Earned: $102
Year 4 National Rate: $18
Year 4: Interest Earned: $148
Future Balance: $9,848
Interest Earned: $148
Year 1: Interest Earned: $28
Year 2 National Rate: $7
Year 2: Interest Earned: $62
Year 3 National Rate: $12
Year 3: Interest Earned: $102
Year 4 National Rate: $18
Year 4: Interest Earned: $148
Future Balance: $9,848
Interest Earned: $148
To summarize, high-yield savings accounts pay more than regular savings accounts—including online savings accounts that are usually included when you open a checking account. HYSAs are a great and easy tool to use to help you reach your savings goals faster.
If you want your savings account to work for you while it sits there, it's time to consider finally opening a high-yield savings account. In the meantime, we have the help to get that minimum balance set up in 30 days!
