In 2023, the Federal Reserve raised nationwide rates to fight high inflation, and banks raised annual percentage yields. On Dec. 13, the rate hikes were paused, but they still remain high. This has led to some positive interest rate changes across personal finance tools.
Because interest rates are on the rise, now’s a good time to open a high-yield savings account (sometimes referred to as a high-interest savings account). We’ve rounded up some of the best savings accounts through a list of federally insured banks below.
What is a high-yield savings account?
High-yield savings accounts (HYSAs) are a type of deposit account offered by brick-and-mortar banks, neobanks (online banks with no physical branches) as online savings accounts, and by state or federal credit unions. As with traditional savings accounts, HYSA account holders typically don’t have debit card access or check-writing privileges, but may be able to transfer money between their HYSA and checking account with an ATM card or online.
HYSAs have some of the highest rates available when it comes to financial products, with some banks and financial institutions advertising APYs over 5%. An HYSA functions similarly to a traditional savings account, except you can earn much more interest. In some cases, you can get an annual percentage yield (APY) that is 10 times higher than the national average savings account rate.
High-yield savings accounts typically have no minimum opening balance or monthly fees, though some banks may require you to maintain a certain minimum balance to earn interest or avoid a monthly service charge.
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.
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HYSA vs traditional savings account
Before opening an account, it’s important to understand the different types of savings accounts. An HYSA is connected to an online financial institution that isn’t connected to a traditional bank or credit union, but the main different from a traditional savings account is the interest rate. Savings account interest rates range from 0.01% to 0.35%, while high-yield online savings grow by much more. Fees, restrictions and minimum deposit requirements depend on the financial institution for both account types, and both types of accounts are FDIC-insured. What you want out of your bank account depends on your needs – some people don’t want the high risk that comes with an HYSA.
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What is APY?
A high-yield savings account’s rate measures the simple interest — or interest earned on the principal you deposit in 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 compound daily or monthly. The more often interest compounds, 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 may be great when you first open the account and then gradually decrease. Generally, APYs increase when the economy is doing well, and the Federal Reserve raises its benchmark rate. Conversely, rates can drop when the economy weakens, and the Fed lowers rates.
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Where should I open a high-yield account?
You can open a high-yield savings account at a financial institution, local bank, or credit union (it may also be possible to open an account online without visiting a branch, but that can vary by institution). Accounts at traditional banks may be subject to higher or more frequent fees, which often go to the upkeep of the branch locations. You also may be subject to any monthly withdrawal limits your bank may have in place.
Because there’s no physical location with overhead costs to pay for, many online-only banks are able to offer HYSAs with higher APYs, and often don’t charge service fees — plus, you can easily open and manage your account completely online or with an app. Make sure you research which is the best bank or bank offer for you.
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Pros of high-yield savings accounts
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Higher interest rates: You’ll generally earn more interest than you would with a traditional savings account.
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Compounding interest: Interest compounds, helping you grow your savings. With interest earned via a high interest rate, your savings will grow exponentially.
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Accessibility: These accounts are a great place to stash your emergency fund, as your money remains accessible. Some accounts, like certificates of deposit (CDs), offer high rates but impose penalties if you withdraw money earlier than planned when you open the account. Some accounts even offer ATM cards for easier access.
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Minimal or no fees: Fees with high-yield savings accounts are rare, so you won’t need to worry about costs eating into your balance.
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Low-risk: High-yield savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), making them a very low-risk option for your money. FDIC insurance — NCUA insurance for credit unions — is government-backed insurance on bank accounts up to $250,000, which protects your savings if your bank or credit union encounters financial trouble.
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Cons of high-yield savings accounts
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Variable rates: Your savings account’s APY can increase or decrease over time. While individual banks set rates, they’re loosely tied to the Federal Reserve’s official interest rates. Banks may opt to decrease savings rates when the fed funds rate goes down.
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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 instance, you may earn a higher rate if you deposit $5,000 vs. $100. So while a $5,000 deposit isn’t necessarily required, it could 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 on finding the best high-yield savings account
Competitive rates are great, but considering other factors besides APY can help you find an account that best meets your needs.
New account offers
Look at high-yield savings account offers for new depositors with high APYs, low to no account fees, and are free to open.
High savings account rates will earn you more interest, but the financial institution offering those rates might not necessarily be the best option for your finances, so do your research before opening an account.
Required deposits
Research applicable deposit requirements. Is there a minimum initial deposit requirement? Do any other deposit requirements apply? Are there tiered APYs depending on your deposit amount?
Fees
Some accounts may have monthly maintenance fees or other fees. Look into which 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 available deposit options. Are mobile check deposits via a mobile banking app an option? Can you make direct deposits via an ATM?
Account linking
Look into whether you can link your new account to an existing checking account at another bank. Make sure there are no restrictions or waiting periods when it comes to being able to access your money.
How to open a high-yield savings account
Once you’ve determined the best high-yield savings account rates — don’t forget to make sure you’re only looking at accounts from member FDIC or NCUA institutions — and found a high-yield savings account that works for you, opening one is simple and can be done in person or online. You’ll generally 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 Identification Number, and copies of a recent mortgage statement or utility bill.
Depending on the account, a minimum deposit amount could apply when you open your HYSA account. If that’s the case, you’ll also need to be ready to transfer money from an existing account to meet the deposit requirement.