High-yield savings accounts offered by online banks have become the go-to place to keep cash. If you want to earn interest without worrying about a weird and wild market, then a high-yield savings account is worth looking into.
Right now, returns are fantastic, better than they've been in years. Plus, a savings account is one of the safest places to put your money.
But high-yield savings accounts aren't the best solution for everyone. Below, we'll look at if they're worth it.
What is a high-yield savings account?
A high-yield savings account is a savings account that offers an above-average annual percentage yield (APY). There is no clear definition for what counts as a "high-yield" savings account, and the best rates can change over time (recently, the bar has risen due to Federal Reserve rate hikes).
High-yield savings accounts are usually offered through online banks. Because they don't have branches, these banks have lower overhead costs. They pass these on to customers in the form of better interest payments.
Benefits of a high-yield savings account
Here are some advantages of choosing a high-yield savings account:
High APY
As discussed above, high-yield savings accounts offer much better APYs than you'll find with traditional brick-and-mortar accounts. This helps your savings grow faster. For example, if you deposit $10,000 in a brick-and-mortar savings account with a 0.04% APY, you'd only earn $4 in a year. But if you put that money in a high-yield savings account with a 4.0% APY, you'd earn $400 in your first year.
Here's a look at how some of the best high-yield savings accounts stack up to traditional accounts:
High-yield savings account comparison
We recommend comparing high-yield savings account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.
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| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings Member FDIC. Rating image, 4.75 out of 5 stars. 4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.Min. to earn: $0 | New customers can earn up to a $300 bonus with qualifying direct deposits! | Open Account for SoFi Checking and Savings |
Read Review Member FDIC. Rating image, 4.00 out of 5 stars. 4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 4.35% Rate info4.35% annual percentage yield as of April 6, 2024Min. to earn: $1 | N/A | Read Review |
Open Account for CIT Platinum Savings Member FDIC. Rating image, 4.75 out of 5 stars. 4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.05% APY for balances of $5,000 or more Rate info5.05% APY for balances of $5,000 or more; otherwise, 0.25% APYMin. to earn: $100 to open account, $5,000 for max APY | N/A | Open Account for CIT Platinum Savings |
Few fees
Online banks typically have few fees. You won't pay anything to open a high-yield savings account, and you won't be charged for not using the account. Chances are, you won't lose money by opening an account.
FDIC insurance
Money in high-yield savings accounts is protected by the FDIC up to $250,000 per depositor per bank. This means that even if your bank goes out of business, you won't lose any money as long as you stay below the FDIC insurance limit for your account.
Related: Pros and Cons of High-Yield Savings Accounts
Drawbacks of a high-yield savings account
High-yield savings accounts are great places to stash money short term, but they come with drawbacks:
Withdrawal limitations
It's harder to withdraw money from a savings account than a checking account. Most savings accounts don't include debit cards or check-writing capabilities, and some banks charge customers for making more than six monthly withdrawals.
Working with an online-only bank also makes accessing your funds harder. For one thing, there's no real-life branch to visit. To withdraw cash, you may have to transfer funds to a checking account. If your checking account is at a different bank, you'll have to wait a few days for the funds to transfer.
Fluctuating APY
The APYs on any savings account can change without warning. Dropping rates could mean less interest earned on your savings. There's not much you can do about this other than switch banks or wait for rates to go back up.
Not ideal for long-term savings
While a high-yield savings account's rates are much better than brick-and-mortar rates, they're still probably not going to beat inflation. So while you're making money, you could be losing buying power. That's why investing is usually the better choice for money you plan to invest for the long term.
Are high-yield savings accounts worth it?
A high-yield savings account is a good choice in the following circ*mstances:
Saving an emergency fund
Emergencies break down the door without warning, so you want to keep your emergency savings handy. If you invest your emergency fund savings into the stock market, you could be forced to sell at a loss. But you won't have this problem with a high-yield savings account.
Short-term savings
Saving up to make a large purchase within the next five years? A high-yield savings account is a better home for your money than a brokerage account. The stock market can be unstable in the short term. By sticking to a savings account, you ensure market swings won't eat money you need tomorrow.
The Ascent's best savings accounts
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's top savings account picks can earn you more than 10x the national average savings account rate.
Best Savings Accounts
FAQs
How much interest you'll earn depends on your account's APY and your timeframe. If you invest $1,000 in a high-yield savings account earning a steady 4% APY, you'd have $1,490.83 after 10 years.
Yes. A high-yield savings account is a great place for your emergency fund because it enables you to earn interest and withdraw the money when you need it most.
Our Banking Experts
By:Kailey Hagen
Writer
Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.
By:Cole Tretheway
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact CheckedEric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
