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What Is a High-Yield Savings Account? [2024]

Last Updated : 06 Mar, 2024
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Are you eager to boost your savings? Look no further! A high-yield savings account is the perfect solution to securely stash your money and watch it grow with impressive interest rates. Whether you’re squirreling away funds for unexpected emergencies or saving up for your dream home, this savings account is your key to achieving your financial aspirations.

High Yield Saving Accounts

But wait, what exactly is a high-yield savings account? How does it work its magic? Your thrilling journey toward financial success begins by grasping the fundamentals.  Let’s dive into this article to learn how to effortlessly open a high-yield savings account and discover the unique features that set it apart from other types of bank accounts.

Having a savings account is crucial for your financial well-being. It not only provides funds for future expenses but also helps you grow your wealth over time. And when it comes to building your savings, you want your money to work hard for you. That’s where a high-yield savings account comes in, keeping your money safe while supercharging its growth through competitive interest rates.

What Is A High-Yield Savings Account?

High-yield savings accounts, also known as high-interest accounts, is a type of federally insured savings product that earns rates that are much better than the national average. It offers higher returns than a traditional savings account. It offer interest rates that can be up to 10 to 20 times higher than the national average of a regular savings account.

Did you know as of Jan 2024, the average interest rate for traditional savings accounts in the U.S. was a measly 0.39%? That’s pocket change! But guess what? During the same time, high-yield online savings accounts were reaching a staggering 5% annual percentage yield (APY).

Let’s do the math. Say you have $5,000 in a regular savings account. With the national average rate of 0.39% APY, you’d only earn $19.50 in a whole year. But if you moved that same $5,000 to a high-yield savings account earning 4.5%, you’d earn a whopping $225 in interest. That’s a huge difference!

But it’s not just about the returns. High-yield savings accounts provide a risk-free way for your money to grow. They’re perfect for storing short-term savings where you don’t want to expose your funds to market volatility or unpredictable returns.

Also, just like traditional savings accounts, high-yield savings accounts come with federal insurance provided by the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Association (NCUA) for credit union accounts. So, up to $250,000 per account is protected against bank or credit union failures.

Benefits of a High-Yield Savings Account

Secure Your Future

An emergency fund is a crucial aspect of financial planning. The good thing is that the power of high-yield savings accounts lies in safeguarding your funds for unexpected situations. With no minimum deposit time, you can access your money whenever you need it, ensuring peace of mind.

Accelerate Your Short-Term Savings

Dreaming of a vacation or planning to buy a car? High-yield savings accounts are an ideal tool for achieving short-term goals. By taking advantage of compounded interest, your savings grow faster as you earn interest on your interest. 

Protect Your Windfalls

Whether it’s a stimulus check, a work bonus, or a generous gift, high-yield savings accounts are the perfect haven for your unexpected windfalls. Instead of wondering what to do with the money, park it in your high-yield savings account until you’re ready to decide. Let your windfall grow and provide you with more options and flexibility.

Fortify Your Finances Against Recession

Economic predictions suggest a 64% chance of a U.S. recession in 2024, leading to tighter budgets and limited job prospects for consumers.  By maximizing the potential of a high-yield savings account, you can protect yourself from the uncertainties of tomorrow and build a resilient financial foundation.

Downsides of a high-yield savings account

Additional requirements for opening

High-yield savings accounts offer better interest rates compared to standard savings accounts, but they may have stricter requirements. These can include a higher initial deposit amount or limits on withdrawals and transfers.

Not just for everyday banking

Unlike a checking account, high-yield savings accounts aren’t designed for your daily transactions, such as grocery shopping and bill payments. They serve more as a safe place to store money that you don’t plan to spend immediately. Transferring funds from your high-yield savings account to your checking account may take a few days. Additionally, savings accounts usually have a limit of six withdrawals per month. 

Not ideal for long-term financial goals

While a high-yield savings account can earn you some interest, it might not be sufficient to keep up with inflation or meet long-term financial goals. Let’s say your high-yield savings account pays a generous 2% interest, but the annual inflation rate is 6%. In that case, your money loses 4% of its purchasing power. The higher the inflation rate, the more purchasing power you lose. So if you have a goal like retirement and are comfortable with some ups and downs, investing in stocks or mutual funds is likely to be a more suitable choice.

Variable interest rate

Unlike a fixed-rate CD account, the interest rate you receive in a high-yield savings account is not fixed. The bank has the authority to change the interest rate at any time.

How High-Yield Savings Accounts Work

Similar to other savings accounts, high-yield savings accounts allow you to effortlessly deposit and withdraw funds, though the number of withdrawals may be limited. Plus, you have the flexibility to transfer money between accounts, making financial management a breeze.

When opening a high-yield savings account, many people opt to do it with the same financial institution where they have their checking account. Because it’s quick, easy, and hassle-free to move your money around whenever you need it, but if you’re on the lookout for the best deals and incentives, you must consider opening up a high-yield savings account offered by online-only banks or credit unions. 

These institutions have lower operating costs compared to traditional brick-and-mortar banks. As a result, they can pass on their savings to you in the form of higher interest rates. Moreover, some high-yield savings accounts offer new customers an irresistible higher interest rate, provided they agree to certain terms and conditions. It’s like getting a bonus just for choosing the right account!

And guess what? You can always set up electronic transfers between your regular bank’s checking account and an online-only bank’s high-yield savings account. This way, you can enjoy the best of both worlds and simplify your money transfers while enjoying a higher percentage yield.

What to look for in a high-yield savings account

When you’re on the hunt for the perfect account, remember to focus on two key factors: Annual Percentage Yield (APY) and fees.

APY: The annual percentage yield is what makes high-yield savings accounts truly rewarding. Your goal is to find an account that offers a high rate of interest, and today, you can discover competitive options that go as high as 4% or more. Maximize your earnings by choosing an account with a generous APY.

Fees: Some banks sneakily impose monthly charges on their savings accounts. But don’t worry; you can outsmart them! Many accounts offer fee waivers if you meet specific criteria like maintaining a minimum balance or making a minimum monthly deposit. Isn’t that fantastic? Keep an eye out for high-yield savings accounts that wave goodbye to monthly fees. And if you find one that charges fees, there is no need to panic! Just ensure that you can easily fulfill the fee waiver requirements each month.

Best High-Yield Savings Account Rates [in July 2024]

  • CFG Bank – 5.17% APY
  • TotalDirectBank – 5.07% APY
  • Popular Direct – 5.05% APY
  • Vio Bank – 5.02% APY
  • Salem Five Direct – 5.01% APY
  • Dollar Savings Direct – 5.00% APY
  • VirtualBank – 5.00% APY
  • Evergreen Bank Group – 5.00% APY
  • My Banking Direct – 5.00% APY
  • Newtek Bank – 5.00% APY
  • CIT Bank – 4.95% APY
  • Valley Direct – 4.85% APY
  • Bask Bank – 4.85% APY
  • First Foundation Bank – 4.85% APY
  • iGObanking – 4.85% APY

Key Takeaway

A high-yield savings account can be a safe and accessible way to grow your money while enjoying strong interest rates, but when choosing to open an account, it’s crucial to evaluate the offerings and limitations of different banks carefully. Make sure to select an institution that aligns with your financial objectives and supports your money-saving aspirations.

High-Yield Savings Account- FAQs

Which bank gives 7% interest on savings account?

No specific bank universally offers a 7% interest rate on savings accounts. Rates vary, and such high percentages are uncommon due to market conditions and economic factors.

What is a high yield saving account?

A high-yield savings account typically offers an interest rate significantly higher than traditional savings accounts, providing better returns on deposited funds while maintaining liquidity.

How much will 10000 make in a high yield savings account?

Earnings on $10,000 in a high-yield savings account depend on the interest rate. At 2%, it would yield $200 annually before compounding, offering better returns compared to standard savings accounts.

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