What Is A High-Yield Savings Account?

A high-yield savings account is essentially the same as a standard savings account, but it pays a much higher yield on your money. The national average yield on savings accounts is 0.59 percent APY. However, you can find high-yield savings accounts that pay over 4 percent — nearly 10 times more than the average.

This makes high-yield savings accounts an essential tool for building emergency funds, saving for short-term goals and maximizing the growth potential of your cash.

How do high-yield savings accounts work?

High-yield savings accounts operate exactly like traditional savings accounts, with one crucial difference: the interest rate. Your money earns compound interest, meaning you earn interest not only on your initial deposit but also on previously earned interest.

For example, if you deposit $10,000 in a high-yield savings account with a 4.5 percent APY, you’d earn approximately $450 in interest over one year. The same amount in a traditional savings account paying 0.59 percent APY would earn only about $59 — a difference of nearly $400.

Why do high-yield savings accounts pay more?

High-yield savings accounts can offer higher rates because they’re typically offered by online banks and credit unions with lower operating costs than traditional brick-and-mortar institutions. Without the expense of maintaining physical branches, these financial institutions can pass those savings to customers through higher interest rates.

Additionally, these banks often use competitive rates to attract new customers and deposits, creating a competitive environment that benefits savers.

Stay updated on rate changes with Bankrate’s weekly rate analysis and savings rate forecasts.

What to look for in a high-yield savings account

When comparing high-yield savings accounts, focus on these key factors:

Annual percentage yield (APY)

The APY is your primary consideration — it represents the total amount of interest you’ll earn in one year, including compound interest. Currently, competitive high-yield savings accounts offer APYs around 4 percent or higher.

Pro tip: Use Bankrate’s compound interest calculator to see exactly how much you can earn with different APY rates over time.

Fees and account requirements

Look for accounts with:

• No monthly maintenance fees: Many high-yield savings accounts charge no monthly fees
• Low or no minimum balance requirements: The best accounts require $0 to $100 to open
• No excessive transaction fees: While federal regulations limit savings withdrawals, avoid accounts that penalize normal usage. Here’s a roundup of all the fees you may encounter with a bank account.

Looking for a fee-free bank account? Here are Bankrate’s picks for best free checking accounts.

FDIC insurance protection

Ensure your chosen bank is FDIC-insured, protecting your deposits up to $250,000 per depositor, per bank, per ownership category. This federal backing means your money is safe even if the bank fails.

Access and convenience

Also, you’ll want to consider your banking habits and how often you’ll need to access your money:

• Mobile app quality and online banking features
• ATM access: Some online banks reimburse ATM fees
• Transfer speed: How quickly can you move money to your checking account?
• Customer service availability and quality

Pros and cons of a high-interest savings account

Pros

• Significantly higher interest earnings: Maximize your money’s growth potential while maintaining easy access to funds.
• Your deposits are federally insured up to $250,000, making high-yield savings accounts as safe as traditional savings accounts.
• Unlike certificates of deposit (CDs), you can access your money anytime without penalties.
• High-yield savings accounts are perfect for storing your emergency fund, offering both growth and accessibility.
• Most accounts require minimal opening deposits and have no monthly fees.

Cons

• APYs can fluctuate with market conditions and Federal Reserve policy changes.
• Most high-yield savings accounts are offered by online banks with few or no physical branches.
• While better than traditional savings, these accounts typically don’t keep pace with long-term inflation or match investment returns.
• Federal regulations limit certain types of withdrawals to six per month.

High-yield savings accounts vs. other savings options

High-yield savings vs. money market accounts

Money market accounts often offer similar rates to high-yield savings accounts but may include check-writing privileges and debit cards. However, they typically require higher minimum balances.

High-yield savings vs. CDs

Certificates of deposit can offer higher rates for longer terms but lock up your money. Choose CDs for funds you won’t need for months or years, and high-yield savings for accessible emergency funds.

High-yield savings vs. investment accounts

While investment accounts offer higher long-term growth potential, they involve market risk. High-yield savings accounts provide guaranteed returns with FDIC protection.

How to open a high-yield savings account

In order to open a savings account, you’ll need to provide information about yourself. This will usually include your name, email address, home address, phone number and your social security number if you have one. 

To open a savings account, you’ll first want to find the right institution for you, whether that’s a traditional bank such as Chase and Bank of America, or an online-only bank such as Ally Bank or Marcus by Goldman Sachs. (Keep in mind online-only banks typically pay higher rates than traditional banks with brick-and-mortar locations.)

After you’ve found the right account for you, just go to the relevant bank’s website and find the link that takes you to the online application. To submit the application, you’ll need information about yourself and some documents, including your social security number and government-issued identification.

Bottom line

A high-yield savings account is one of the simplest ways to make your money work harder for you. With rates currently 10 times higher than traditional savings accounts, these accounts offer a risk-free way to boost your savings growth while maintaining full access to your funds.

The key is choosing the right account for your needs — prioritize competitive APYs, low fees, and strong customer service. Whether you’re building an emergency fund, saving for a major purchase, or simply want better returns on your cash, a high-yield savings account should be a cornerstone of your financial strategy.