Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate banking products to write unbiased product reviews.
- High-yield savings accounts and regular savings accounts are both federally regulated and liquid.
- The main difference is that high-yield savings accounts can earn up to 12 times more in interest.
- Some of the highest-yielding savings accounts are offered by online banks.
A savings account is a good place to save money for short-term goals like a down payment, car, vacation, or emergency fund.
But a high-yield savings account will likely be a stronger choice for storing your money than a traditional savings account.We'll explain how these two types of accounts compare.
Understanding high-yield savings accounts
Definition and overview of high-yield savings accounts
A high-yield savings account is a bank account that earns a competitive interest rate.
You can see how much a high-yield savings account earns by checking the annual percentage yield (APY). This is expressed as a percentage and shows you how much you can earn in a year.
The APY of a high-yield savings account factors in how frequently interest is compounded, so it may be higher than the account's interest rate. Some banks will provide information on both the interest rate and APY, so it's important to know the difference so you know how much interest you're actually earning over time.
High-yield savings accounts are just as liquid as any other savings account, and your funds are not invested, making them a good place to put any money that you want to grow but will need in the next few years.
How they differ from regular savings accounts
High-yield savings accounts have essentially the same features as any other savings account. Both types of accounts share the following features:
- Are structurally the same
- Are federally regulated and offer FDIC or NCUA insurance
- May limit withdrawals to six times a month, though the cap is no longer federally mandated
- May require a minimum opening deposit or minimum daily balance
- Can be used for short-term savings goals
Note that high-yield savings accounts and high-yield checking accounts are not the same and are best used for different purposes.
Interest rate fluctuations in high-yield savings accounts
When the Federal Reserve raises or lowers its federal funds rate, rates on deposit accounts can go up or down.
The Federal Reserve may raise the federal funds rate when it's fighting inflation and wants to slow down economic activity. Then, when it wants to stimulate growth, it'll do the opposite and lower the federal funds rate. It's a careful balancing act that requires the Federal Reserve to assess current economic data to best plan its path ahead.
Historically, we've seen high-yield savings accounts shift in a similar pattern to the federal funds rate. High-yield savings rates tend to drop following rate cuts and rise when rates climb. Bank competition can also influence individual bank rate changes, as banks will try to find ways to bring in customers and maintain competitive options.
High-yield savings accounts currently are paying some of the highest yields in the last 10 years. That said, the Federal Reserve has already started cutting rates in 2024, which has led to some rate declines. This will likely continue in 2025.
Benefits of high-yield savings accounts
Higher interest rates on accounts
Some of the best high-yield savings accounts pay around 5% APY. Meanwhile, the average savings rate in the U.S. is just 0.42% APY, according to the FDIC. Hence, traditional accounts earn so little that a high-yield account earns around 9 to 12 times more interest.
For example, if you had a $10,000 emergency fund and transferred it into a high-yield savings account with 5% interest, compounding daily for five years, you'd earn about $2,840 in interest alone. Leave it for 10 years, and that $10,000 would grow to around $16,486 in total.
If that same $10,000 had been in a regular account earning 0.05% interest, it would have only earned $50.82 over 10 years.
Safe and secure savings
High-yield savings accounts that are FDIC-insured at a bank or NCUA-insured at a credit union are completely risk-free, just like regular savings accounts and checking accounts.
Federal insurance protects up to $250,000 in an individual account or up to $500,000 in a joint account in the event of a bank or credit union failure. If your savings exceed the coverage limits at your institution, you can consider moving the excess savings to a new account at a different institution, where you will have an additional $250,000, or $500,000, in coverage for that account.
This makes a high-yield savings account ideal for money that you don't want to take any risk on. As long as you make sure your total balance is federally insured, your money will be protected even if there's a bank failure.
Easy access to funds on savings
For money you're setting aside for an emergency or a specific savings goal, a high-yield savings account is best. Depending on the bank, you may be permitted to make withdrawals at any time for no fee, though you likely won't have a debit card. In order to initiate a transfer, you'll typically need to do it via your online account or visit a bank branch.
Note that some banks still enforce a pre-COVID withdrawal limit of six times per month, charging a fee of up to $10 for each transaction over that limit.
Limitations of high-yield savings accounts
Fund transfers for savings
Money that you need daily access to should be kept in a checking account. Checking accounts usually have debit cards so you can access your money. Some banks may also have ATM cards or debit cards for high-yield savings accounts, but this isn't common.
Choosing your bank when opening a high-yield savings account also matters. Some high-yield savings accounts accept cash deposits, while others don't. Some banks also don't have checking accounts. If the bank only has savings options and you can't withdraw cash from your savings account, you'll have to transfer money to an external financial institution, which may take more days to process.
Tax implications for high-yield savings accounts
Since you're earning interest in a high-yield savings account, that's taxable. You'll have to take that into account when filing your tax return.
Savings account interest is taxed as ordinary income, so the tax rate you have to pay depends on your current federal income tax rate.
Banks send a 1099-INT form by mail at the beginning of the year so you can factor in savings account interest in your tax return. You'll still have to include this information in your tax return even if you don't receive it.
The interest you'll earn on a high-yield savings account usually isn't enough to significantly impact your tax return, unless you keep a substantial savings balance.
Features to look for in a high-yield savings account
Interest rate on high-yield savings accounts
While high interest rates are the main draw of high-yield savings accounts, it's important to note that they're subject to change. Though it's tempting to choose the account with the highest interest rate, it's critical to also consider the bank's reputation, as well as any account fees and requirements, since the rate will fluctuate.
Currently, high-yield savings accounts range from 4% to 5% APY, so as long as you find an account within that range that fits your needs, you can rest assured that you're also getting a good rate.
Minimum balance requirements on high-yield savings accounts
Some savings accounts, especially those with highly competitive rates, have a minimum deposit requirement. Hence, you may need to keep a certain amount of money in your account at all times in order to earn the advertised APY.
Fees and charges on high-yield savings account
There are plenty of high-yield savings accounts that charge no monthly maintenance fee, but there may still be charges for things like excess withdrawals and ATM usage.
Some banks will charge an excess withdrawal fee if you take out money from your savings account more than six times per month. This used to be a federal rule, but the Federal Reserve amended it during the COVID-19 pandemic, so banks now can enforce it, increase the limit, or eliminate it entirely.
You might also face ATM fees when you take out money from an outside ATM network. Some banks offer reimbursements for ATM fees, but if they don't, it's best to try to stick to your bank's ATM network to avoid any fees.
Be sure to read through the financial institution's fee schedule to understand your high-yield savings account fees, as these fees can take away from your overall account balance as well as interest earnings.
Account accessibility for high-yield savings accounts
Consider how you'd like to access your money, whether in person or online.
Banking with a traditional bank or local credit union means you can typically walk into a physical branch to withdraw or transfer money. If you're tech savvy and won't need to frequently withdraw cash from your savings account, an online bank may be a better fit.
If you like checking your account balance or transferring money from your phone, check whether the financial institution has a mobile app and read through the reviews.
How high-yield savings accounts compare to other savings options
You don't only have to choose between a high-yield savings or a traditional savings account. Banks also have other types of savings accounts, like money market accounts and CDs.
If you prefer greater account accessibility, a money market account may be a better fit than a high-yield savings account. Money market accounts typically offer check-writing privileges, ATM cards, debit cards, or a combination of these services. These accounts are on par with the rates offered by high-yield savings accounts, although they are more likely to have monthly service fees or tiered interest rate structures.
If you'd like to open an account with a fixed interest rate, you might choose a CD over a high-yield savings account. However, keep in mind that CDs require you to make one upfront deposit and then maintain money in the account until the term ends. If you take money out, you'll pay an early withdrawal penalty. You also can't make additional deposits unless you open an add-on CD.
How to open a high-yield savings account
Choosing the right bank for a high-yield savings account
There are lots of high-yield savings accounts to choose from, mostly from online banks. These institutions don't have to manage physical branches and therefore, generally offer more competitive yields and minimal fees compared to traditional brick-and-mortar banks.
Minimally, your bank should have FDIC insurance. If you go with a credit union, be sure it has NCUA insurance. These coverages protect your money — up to $250,000 per depositor, per account type, per institution — in the event of a bank or credit union failure. Online banks may even offer up to $1 million in FDIC insurance because they partner with multiple banks to store your money.
Required documents and steps for account opening process
Most banks will allow you to open a high-yield savings account online.
A high-yield savings account application will ask for personal details, including your legal name, Social Security number (or a Taxpayer Identification Number for immigrants and non-U.S. citizens), photo ID, date of birth, home address, phone number, and email address.
Account funding options vary by bank. To deposit money, you may be asked to link an external bank account and initiate an ACH transfer or wire transfer. If you're banking with a brick-and-mortar financial institution, you may be able to make a cash deposit for your initial deposit instead.
High-yield savings account definition FAQs
A high-yield savings account is a savings account with a competitive interest rate. Regular savings accounts pay an average of 0.42% APY, while many high-yield savings accounts offer rates of 4.25% or higher.
It works like a regular savings account but earns interest that is deposited into your account monthly, growing your balance.
Yes, they're as safe as regular savings accounts thanks to FDIC and NCUA insurance that protects your money (up to $250,000 per account type and per institution) in the event of a bank or credit union collapse.
You can access your money anytime. However, some banks limit how many times you can make withdrawals each month and charge a fee for each additional transaction.
You will need to provide basic identification and contact information, including your Social Security number. If you're a non-U.S. citizen or immigrant, you will be asked to provide alternative documentation.
