Interest rates on high yield savings accounts are high and could rise further. The Federal Reserve raised rates to fight inflation, and banks 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 Yield Savings Account?
A High Yield Savings Account, often referred to as a HYSA, is a type of deposit account offered by a bank or credit union. A HYSA works the same way as a traditional savings account, except you can earn a lot more interest. In some cases, you can earn an annual percentage return (APY) 10 times the national average savings account rate.
High yield savings accounts generally have no minimum opening balance or monthly fee, although some banks may require you to maintain a certain minimum balance to earn interest or avoid monthly service charges.
Depending on the financial institution, you may earn the same rate regardless of your balance, or your APY may be tiered based on your balance.
What is APY?
The rate on a high yield savings account measures simple interest – or the interest earned on the principal you deposit into the account. APY is the rate of return earned on your savings account, including compound interest. Compound interest is the interest you earn on the money you deposit and the interest you earn on that money. Most savings accounts and CDs are compounded daily or monthly. The more the interest is compounded, the faster your money will grow.
Although HYSAs have some of the highest APYs available, these rates vary. This means that your bank or credit union may change your APY – your rate may be high when you first open the account and then gradually decrease. Typically, APYs rise when the economy is doing well and the Federal Reserve raises its benchmark rate. Conversely, rates can fall when the economy weakens and the Fed lowers rates.
Benefits of High Yield Savings Accounts
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High savings rates: You will generally earn more interest than with a traditional savings account.
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Compound interest: Compound interest helps you grow your savings.
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Accessibility: These accounts are a great place to stash your emergency fund because your money remains accessible. Some accounts, like certificates of deposit (CDs), offer high rates but impose penalties if you withdraw money earlier than expected when opening the account. Some accounts even offer ATM cards for easier access.
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No Fees or Minimal Fees: Fees for high-yield savings accounts are rare, so you won’t have to worry about costs eating away at your balance.
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Low risk: High Yield Savings Accounts are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration, making it a very low risk option for your money. HYSAs have FDIC insurance — NCUA Insurance for Credit Unions — which provides government-backed insurance on bank accounts up to $250,000, which protects your savings if your bank or credit union runs into financial difficulty .
Disadvantages of High Yield Savings Accounts
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Variable prices: The APY of your savings account may increase or decrease over time. While individual banks set rates, they are loosely tied to official Federal Reserve interest rates. Banks can choose to cut savings rates when the federal funds rate drops.
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Minimum balance required: Some accounts may have a high minimum opening deposit.
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APY at several levels: 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 might result in a better APY.
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Better for short-term savings: High-yield savings accounts aren’t the best choice for long-term savings goals, like retirement. Investment accounts tend to offer higher long-term returns.
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Withdrawal limits may apply: Depending on your bank, you may have a limit on monthly withdrawals.
Tips for Finding the Best High Yield Savings Account
APY
See which bank accounts offer the best interest rates for savings accounts. High savings rates will earn you more interest, although the high yield savings account with the best APY available may not necessarily be the right option for your finances. Considering factors other than APY can help you find an account that best suits your needs.
Deposits required
Find the applicable filing requirements. Is there a minimum initial deposit requirement? Do other deposit requirements apply? Are there tiered APYs based on your deposit amount?
Costs
Some accounts may have monthly maintenance fees or other charges. Check what fees may apply before opening a new account.
Accessibility
Understand how you can access your money before opening a new account. For example, can you log into an online dashboard? Does your bank have a mobile app? Is it connected to an ATM network?
Deposit options
Review the deposit options available. Are mobile deposits an option? Can you make deposits through an ATM?
Account link
Check if you can link your new account to an existing account at another bank. If this is important to you, you’ll want to make sure there are no restrictions or waiting periods to access your money.
How to Open a High Yield Savings Account
Once you’ve determined the best high-yield savings account rates – remember to make sure you’re only looking at accounts from FDIC or NCUA member institutions – and found an account high yield savings plan that’s right for you, opening one is simple and can be done in person or online. You will usually need to provide your personal information, proof of identity and address to open a new account. Make sure you have your driver’s license, social security card, or individual tax ID, 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 will also need to be prepared to transfer money from an existing account to meet the deposit requirement.