High-Yield Savings Accounts: What to Look for, are they Worth it, and Where to Open One

What's a High-Yield Savings Account?

A high-yield savings account, often referred to as an HYSA, is a type of savings account that offers a significantly higher interest rate compared to regular savings accounts, enabling your money to grow at an accelerated rate.

While many traditional banks like Bank of America and Wells Fargo offer interest rates equivalent to cents on the dollar, many high-yield savings accounts offer interest rates that are 10x, even 12x, higher than the national average.

What to Look for in a High-Yield Savings Account?

While opening a high-yield savings account is pretty much a no-brainer, there are a few things to look for before deciding where to open your high-yield savings account.

‍FDIC Insured

One of the first and most important things to look for when opening a high-yield savings account is to confirm that the financial institution offering the account is FDIC-insured. This ensures that your money is protected up to the maximum limit allowed by the Federal Deposit Insurance Corporation (FDIC) (currently $250,000 per depositor, per insured bank). While unlikely, this will give you peace of mind knowing that your money is protected even in the event of a bank failure.

‍APY (Annual Percentage Yield)

The Annual Percentage Yield represents the effective annual interest rate, taking compounding into account. It reflects the total interest you'll earn on your savings in a year. When looking to open a new high-yield savings account, take a look to see which banks are offering the highest rates – currently (July 2023), many banks are offering 4%+ APYs on their HYSAs.

‍Low Opening Deposit

If you're looking to open a high-yield savings account, especially if you're just starting out, look for an account that offers a low opening deposit. An "opening deposit" is the minimum amount of money required to open a new account.

A low opening deposit is great if you don't already have a lot of savings or for those who prefer to start with a smaller amount and "test" out a bank before moving their life savings over to a new bank. Luckily, many high-yield savings accounts have low opening deposits – so you shouldn't have trouble finding several options that meet this criteria.

Fees and Minimum Balance Requirements:

Assess any fees associated with the account, such as monthly maintenance fees, overdraft fees, or transaction fees. Some high-yield savings accounts have no fees, while others may require you to maintain a minimum balance to avoid fees. Ideally, you’ll want to find a high-yield savings account that has little to no fees and doesn’t require you to maintain a high balance–especially if you’re just starting out.

Accessibility +  Easy Transfers

Before opening a high-yield savings account it’s important to assess how easily you can access, and transfer, your funds when needed. Some high-yield savings accounts provide online banking features, mobile apps, and ATM access, while others may have limitations on withdrawals or restrict transfers to only linked accounts. Choose an account that offers the level of accessibility and convenience that suits your anticipated needs and goals.

Reading online user reviews can be a good way to help you get a sense of how accessible your account with a certain bank will be. Trust me, if users found it hard to get their money out, or found themselves waiting days for a transfer to go through, they’ll be writing about it.

What should I use my High-Yield Savings Account for?

A high-yield savings account can be used for various financial goals and purposes but here are some of the most common uses;

Emergency Funds

‍One of the primary purposes of a high-yield savings account is to serve as an emergency fund. It's recommended to have three to six months' worth of living expenses saved in case of unexpected events like job loss, medical emergencies, or home repairs. A high-yield savings account provides a safe and accessible place to store these funds while allowing you to earn more on your savings.

Short-Term Goals

‍ If you have specific short-term financial goals, such as saving for a vacation, a new computer, or a used car, a high-yield savings account can be a great place to keep those funds, as well. It allows you to grow your savings with a higher interest rate compared to a traditional savings account, while still maintaining easy access to your funds when needed.

Saving for Large Purchases

‍If you're planning for significant expenses in the future, such as a wedding, or a down payment, a high-yield savings account is a great place to keep those funds as well. The higher interest rate can help your savings grow faster, allowing you to reach your savings target more quickly.

Remember, how you use and how much you save in a high-yield savings account will depend on your financial goals and individual circumstances. It's important to assess your needs and objectives to determine how a high-yield savings account can best serve you in achieving your financial goals.

Is the Rate on my High-Yield Savings Account fixed?

No, rates on high-yield savings accounts aren’t fixed.

Put in the most oversimplified way, bank rates are tied to economic conditions (among other factors.) This means you may see your APY drop at times but at other times you may see it increase.

I’ve had a high-yield savings account for many years and my APY has been as low as 0.85% and as high as 5.50%.

You’ll usually find that most banks offering a HYSA will offer a similar APY so it’s usually not worth it to jump around from bank to bank unless you’re truly getting a significant rate increase.

Is a High-Yield Savings Account (HYSA) actually worth it?

Yes.

Like with a traditional savings account, the more money you have in your account the more interest you’ll earn but to illustrate how “worth it” opening an HYSA can be, let’s look at an example.

The national average rate of return on a normal savings account is about 0.04%.

If you put $5,000 into a normal savings account with a 0.04% APY you would earn about $2 in interest in a year.

If you put $5,000 into a high-yield savings account with 1% you would earn about $50 in interest in a year.

If you put $5,000 into a high-yield savings account with a 5% APY (that’s what my current APY is) you would earn about $250 in interest in a year.

See–worth it.

Where can I Open a High-Yield Savings Account (HYSA)?

When it comes to opening a High-Yield Savings account there’s lots of options.

Online banks often offer some of the highest rates for high-yield savings accounts. This is because online banks typically have fewer overhead expenses than traditional banks, which allows them to pass on the savings to their customers in the form of higher interest rates.

Many credit unions also offer high-yield savings accounts as well and because credit unions.

Here’s a list of some of the most popular places to open a high-yield savings account:

Marcus by Goldman Sachs

Ally

CIT Bank

Wealthfront

If you’re looking for additional options, every month tons of blogs put out articles about the best High-Yield Savings accounts. Just google “Best High Yield Savings Accounts for (month)(year) and you’ll find tons of articles highlighting different banks.

‍What Bank do you use for your High-Yield Savings Account (HYSA)?

Currently, I’m using Marcus by Goldman Sachs.

I’ve been using it for 3+ years and I haven’t had any major issues– but, transparently, I’ve mostly deposited money and haven’t transferred much out.

As always though, do your own research to see what’s the best option for YOU!