by Interest rates on high-yield savings accounts are high and could rise further. The Federal Reserve has raised interest rates to fight inflation, and banks have also raised APYs. If you’re considering opening a high-yield savings account, consider opening one with a federally insured issuer from our list below.
What is a high interest savings account?
A high-interest savings account, often referred to as a HYSA, is a type of deposit account offered by a bank or credit union. A HYSA works in the same way as a traditional savings account, except you can earn much more interest. In some cases, you can get an annual percentage rate of return (APY) that is 10 times higher than the national average savings account interest rate.
High-interest savings accounts usually have no minimum opening balance or monthly fees, although some banks may require you to maintain a certain minimum balance in order to receive interest or avoid monthly service fees.
Depending on the financial institution, you may earn the same rate regardless of your balance, or your APY may be stepped based on your balance.
What is APY?
The rate of a high-yield savings account measures the simple interest — or interest earned on the principal you deposit into the account. APY is the return on your savings account, including compound interest. Compound interest is the interest you receive on the money you deposit and the interest you receive on that money. Most savings accounts and CDs are compounded daily or monthly. The more often interest accrues, the faster your money will grow.
While HYSAs have some of the highest APYs available, those rates are variable. That means your bank or credit union can change your APY – your rate can be great when you first open the account and then gradually reduce it. In general, when the economy is doing well, APYs increase and the Federal Reserve raises its reference rate. Conversely, rates may fall if the economy weakens and the Fed cuts rates.
Advantages of high interest savings accounts
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High savings account rates: You generally get more interest than on a traditional savings account.
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Compound Interest: Interest is compounded, allowing you to grow your savings.
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Accessibility: These accounts are a great place to stash your emergency fund as your money remains accessible. Some accounts, such as certificates of deposit (CDs), offer high fees but impose penalties if you withdraw money ahead of schedule when you open the account. Some accounts even offer ATM cards for easier access.
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No or minimal costs: Fees with high-yield savings accounts are rare, so don’t worry about the fees eating into your balance.
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Low risk: High-yield savings accounts are insured by the Federal Deposit Insurance Corp. or National Credit Union Administration, making them a very low-risk option for your money. HYSAs have FDIC insurance — NCUA Credit Union Insurance — which provides government-backed insurance for bank accounts up to $250,000, protecting your savings if your bank or credit union gets into financial trouble.
Disadvantages of high interest savings accounts
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Variable Rates: Your savings account APY can go up or down over time. While individual banks set rates, they are loosely tied to the Federal Reserve’s official interest rates. Banks can choose to lower savings rates when Fed Funds rates fall.
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Minimum Balance Requirement: Some accounts may have a high minimum opening deposit.
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Tiered APYs: Some banks may have tiered APYs depending on the deposit amount. For example, you can earn a higher rate if you deposit $5,000 instead of $100. So while a $5,000 deposit isn’t necessarily required, it can result in a better APY.
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Better for short term savings: High-interest savings accounts are not the best choice for long-term savings goals, such as retirement. Investment accounts generally offer higher long-term returns.
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Withdrawal limits may apply: Depending on your bank, you may have a monthly withdrawal limit.
Tips for finding the best high-yield savings account
APY
See which bank accounts offer the best savings interest. High savings account rates will earn you more interest, although the high-interest savings account with the best APY available isn’t necessarily the right option for your finances. Considering other factors besides APY can help you find an account that best meets your needs.
Required Deposits
Research applicable deposit requirements. Is there a minimum initial deposit requirement? Are there any other deposit requirements? Are there tiered APYs depending on your deposit amount?
Fees
Some accounts may have monthly maintenance fees or other charges. See what fees may apply before you open a new account.
Accessibility
Understand how to access your money before opening a new account. For example, can you log in to an online dashboard? Does your bank have a mobile app? Is it connected to an ATM network?
Deposit Options
View the available deposit options. Are mobile deposits an option? Can you make deposits through an ATM?
Link account
See if you can link your new account to an existing account with another bank. If this is important to you, you want to make sure there are no restrictions or waiting times to access your funds.
How to open a high interest savings account
Once you’ve determined the best rates for high-yield savings accounts — remember to make sure you’re only looking at accounts from affiliated FDIC or NCUA institutions — and found a high-yield savings account that works for you, by opening one is simple and can be done in person or online. In general, you need to provide your personal information, proof of identity and your address to open a new account. Be sure to bring your driver’s license, Social Security card, or individual tax identification number and copies of a recent mortgage statement or utility bill.
Depending on the account, a minimum deposit amount may apply when you open your HYSA account. If so, you should also be ready to transfer funds from an existing account to meet the deposit requirement.
