What is a high yield savings account? – Councilor Forbes


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A high yield savings account can provide a safe place to keep money for the short or long term. Compared to traditional savings accounts, high yield savings can also offer an interest rate that is significantly higher than the national average.

Getting the best savings rate can be important to you if you hope to grow your money as much as possible. And the difference in returns can be significant as your savings balance grows, especially when the interest rates on traditional savings accounts fall.

But if you’ve never had a higher interest savings account before, you might be wondering how they work and where to open one. Understanding the basics of high yield savings can help you decide whether opening savings is worth it.

What is a high yield savings account?

Generally speaking, a savings account is a type of deposit account offered by traditional banks, online banks, and credit unions. You put money into a savings account and, in return, the bank pays you interest on your balance. This interest must be declared on your taxes at the end of the year, if the interest earned is $ 10 or more.

A high yield savings account works much the same as a regular savings account, with one key difference. The interest rate and Annual Percentage Return (APY) you earn can be 10 to 25 times higher.

This is what it means for a savings account to be high yield. As for the difference a high interest savings can make compared to regular savings accounts, here’s an example.

Suppose you want to open a savings account with $ 1,000 and save an additional $ 100 per month. Bank A offers a traditional savings account paying 0.05%. Bank B offers a high yield savings account paying 0.50%.

Over a 12 month period, Bank A would pay you $ 0.77 in interest on your initial deposit and monthly contributions. Bank B, on the other hand, would pay you $ 7.75, or about 10 times the amount of interest.

These numbers are relatively low, but they illustrate how stark the difference can be between traditional savings accounts versus high interest. The more APY you can get with a high yield savings account and the more you deposit, the more your money can grow.

How do high yield savings accounts work?

There are different types of savings accounts, including high yield savings, but they all share some things in common.

For example, high yield savings accounts:

  • Can be opened in banks and credit unions
  • Allow you to make an initial deposit and monthly deposits
  • Are accessible via withdrawals or transfers to linked bank accounts

High yield accounts can be FDIC protected if they are held in an FDIC insured bank. As with other types of savings accounts, the same protection limits apply per depositor, per financial institution, for each category of account holder. So that means that even if the bank goes bankrupt for whatever reason, your money in a high interest savings account is protected up to the applicable limits.

A high yield savings account may also be subject to monthly withdrawal limits, the same as traditional savings accounts. While federal rules limiting savings account holders to six withdrawals per month have been suspended, banks and credit unions can still limit the number of withdrawals you are allowed to make. And they can charge excess withdrawal fees.

What sets high yield savings accounts apart, aside from the interest rate and APY they can earn, includes:

  • Where you can open them
  • Minimum deposit requirements
  • Monthly fee

As to where to find a high yield savings account, traditional banks and credit unions can offer them. But you are more likely to see them in online banking and neobanks (fintech offering online financial services).

Online banks generally have lower operating costs than traditional financial institutions. As a result, they can offer higher interest rates to savers. At the same time, they can also charge less fees for high yield savings.

For example, you can’t pay any monthly maintenance fees or minimum balance fees. There also cannot be any excess withdrawal fees or wire transfer fees. These features can add to the appeal of a high yield savings account because not only do you get a higher rate, but you also save money on fees.

Minimum deposit requirements may vary from bank to bank. It is possible to open high yield savings accounts with as little as $ 0 at some online banks, although some may require you to have $ 100 or more to start.

Benefits of high yield savings accounts

If you’re wondering if opening a high yield savings account makes sense, it’s worth considering the benefits.

Again, a high yield savings account can provide a safe place to keep your savings until you plan to spend. You could use a high yield savings account to save for a variety of short and long term financial needs and goals, including:

  • Emergency savings
  • Vacation Fund
  • Planning a wedding
  • Coverage of medical costs
  • To buy a car
  • Start a business
  • To buy a house
  • College planning

A high yield savings account is not necessarily suitable for something like retirement savings. For that, you’re probably better off turning to tax-efficient retirement accounts or a taxable investment account, either of which may offer more room for growth. But, overall, high yield savings accounts can serve a number of purposes as part of your financial plan.

The interest you might earn can far exceed the APY you might get with a traditional savings account or even a money market account or certificate of deposit. And, compared to a CD, high yield savings accounts can offer more flexibility when it comes to withdrawing money. For example, you can link high interest savings to your checking account for convenient transfers.

Being able to avoid monthly maintenance fees or other charges is an added benefit. Consider the previous example. With traditional savings accounts, your annual interest income would break down to about six and a half cents per month. If the bank charges you $ 5 or $ 10 a month as an account maintenance fee, that savings account is actually costing you money. A high yield account, on the other hand, may not have any fees to worry about at all.

How to open a high yield savings account

If you are interested in a high yield savings account, opening one is relatively easy. All you need to do is choose an account that best suits your needs and then complete the process of opening an account with the bank.

When it comes to choosing a high yield savings account, there are a few things to pay attention to. Specifically consider the following when comparing high interest savings options:

  • Interest rate and APY. Of course, the first thing you’ll want to look at is the interest rate and APY. This can help you compare at a glance which high yield savings accounts are best, based solely on the potential for interest returns.
  • Minimum deposit requirements. Next, think about how much you will need to deposit to open a high yield savings account. Also, note the different minimum balance requirements that you may need to meet in order to achieve the stated return.
  • Fresh. As mentioned, the fees can eat into the interest you earn on your savings. Check to see if a high yield savings account charges monthly maintenance fees, minimum balance fees, or any other type of fee.
  • Access. If you open a high interest savings account online, branch banking or access to ATMs may not be an option. Think about the methods you have for adding or withdrawing money from your account.
  • Online and mobile banking. Again, if you are opening a savings account online, it is important that you can manage it wherever you are. Looking at the bank’s website and its mobile banking app, including reviews on the App Store and Google Play, can give you an idea of ​​the kind of digital banking experience you can expect.
  • Customer service. If you have any questions or issues with your High Yield Savings Account, it’s important that you can get help when you need it. So consider what type of customer support options (phone, messaging, or live chat) are available.

Once you have chosen a bank, the next step is to open an account. This is similar to opening any other type of savings account, in that you will need to provide basic personal information such as your name, address, and social security number. You will also need to share the routing and account number information for the bank account from which you plan to make your initial deposit. But, other than that, opening a high interest savings account online can be a relatively quick and easy process.

Calculate high yield savings

While online banking is growing in popularity, many people still prefer the brick and mortar approach. An easy way to decide if a high interest savings account might work for you is to use a savings calculator to estimate the interest you could earn in a year. Seeing the difference in returns between a high yield savings account and a traditional savings account might persuade you to try online banking.


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