This post may contain affiliate links. That means if you click and buy, I may receive a small commission (at zero cost to you). Please see my full disclosure policy for details.
If you have a savings account from the local bank down the street, you’re missing out on a huge earning opportunity.
That opportunity is a HIGH YIELD SAVINGS ACCOUNT.
Everyone should have at least one savings account as part of their overall money management strategy. But knowing what type of savings account you should have can help you take advantage of interest rates 10X more than the national average or higher.
As of January 17, 2023, the national average savings rate is 0.33%, according to the FDIC.
Let’s say you had $10,000 sitting in your savings account right now and were earning 0.33% APY. After one year, you would earn $33. Now, if you had a high yield savings account that earned 3.00% APY and didn’t deposit another cent, you’d earn $300.
Without doing anything. That’s the power of a high yield savings account.
Considering the rising inflation rates we’ve experienced this past year, having a savings account with a higher interest rate not only can help you earn more but it can protect you from losing money on your savings.
Here’s a deeper look at high yield savings accounts, what to look for when choosing an HYSA, and where to look for a high yield savings account to maximize your savings this year.
What is a High Yield Savings Account?
A high yield savings account, or HYSA, is a savings account that earns a higher yield than a traditional savings account. That’s basically it. They operate almost identically to your savings account at the local bank. They are subject to the same transaction limits as savings accounts.
And like a traditional savings account, when you deposit money in an HYSA, it earns interest. HYSAs typically feature variable interest rates, which can change at any time. If you’re looking for guaranteed rates, a certificate of deposit might be a better option for your savings.
Typically, online banks and credit unions offer high yield savings accounts. That’s because online banks don’t carry all the overhead costs associated with the brick-and-mortar bank down the street.
Online banks don’t operate bank branches, usually require less staff, and use less equipment and supplies. Instead of pocketing all that savings, many online banks reward customers with higher interest rates and fewer bank fees. It’s not done out of the kindness of their heart. They are out to make money and use these attractive features to gain more customers. But if you’re comfortable banking online, you can score great rates to build up your savings.
Banks are for-profit businesses. Credit Unions, though, are non-profits run by their members. Similar to an online bank, credit unions reward members with fewer fees, competitive rates, and other benefits. Generally, credit union membership requires a common bond, like living in a particular region, working for the same employer or belonging to a common group or organization.
This high-yield savings account earns 4.60% APY That's over 11x the national average!
Savings Connect requires a $100 minimum opening deposit. No monthly fees. FDIC insured.
Benefits of a High Yield Savings Account
HYSAs carry several benefits that make them a more attractive choice for savers.
Higher APYs: High yield savings accounts typically pay higher APYs than other savings accounts.
Modern banking features: Online banks lead the industry with providing consumers with the latest banking tools and features, including mobile banking, budgeting tools, and advanced security measures.
Easily accessible: Accessing your money doesn’t require hopping in your car and driving to your bank to withdraw. You can just transfer money in and out of the account. As long as you don’t go over the account’s transaction limits, you’re good.
Deposits are insured: Deposits to high yield savings accounts at banks are FDIC-insured up to legal limits. HYSA deposits at credit unions are protected by the National Credit Union Administration (NCUA).
Out of sight: Keeping your savings in a separate account makes it less tempting to pull funds for everyday use. Also, if your checking account is at a different bank than your HYSA, transfers can take a few days, creating an extra psychological barrier, and making you less likely to transfer funds for unnecessary purchases.
No fees: Most (but not all) online banks don’t charge monthly maintenance fees on high savings accounts. Some banks may require a minimum opening deposit or you to keep a minimum balance to earn interest.
When to use High Yield Savings Account
Like any savings account, you can use an HYSA in several ways. Some of our favorite uses for high yield savings accounts include:
Emergency funds: Keeping your emergency fund in a separate account means it’s less likely you’ll borrow funds for non-emergency use. Plus, keeping it in an HYSA means you’ll earn APY while it sits untouched.
Sinking funds: Sinking funds are funds specifically set up for financial or life goals. We use sinking funds to save for travel, college for our kids, home and car maintenance, and other savings goals. Through automatic transfers, we can quickly move money from our checking account to our sinking funds every month.
Fun Fact: We actually have 10+ high yield savings accounts open through Capital One — one for each sinking fund (they allow you to open up to 25!!!). Kevin, isn’t that difficult to track? NOPE. It’s super easy.
Tax fund: If you’re self-employed like me, you know you are responsible for paying your own
When not to use an HYSA
There are a few times when a high yield savings account doesn’t make sense. An HYSA may not be the best option for:
Everyday spending: Savings accounts carry transaction limits. Too many monthly transactions and you’re bank could charge fees or close the account. A checking account is a better option for your everyday spending. Plus, savings accounts don’t typically come with debit cards like checking accounts.
Retirement savings: A savings account is not an investment account. Even with higher APYs. a high yield savings account isn’t going to have the same earning power for long-term growth as an investment account. Your employer’s 401(k), IRAs, and brokerage accounts make better options when saving for retirement.
Guaranteed savings: Banks can adjust variable interest rates on a high yield savings account. If you prefer to know exactly how much savings you’ll earn over a specific period, a certificate of deposit (CD) come with fixed rates. You can calculate exactly how much you’ll earn based on the APY, your deposit amount, and the CD term length.
What to look for in a High Yield Savings Account
Don’t get bogged down in the details. It’s probably better to pick the wrong HYSA and start saving money now than to spend weeks or months deciding on a specific account. Here are some factors to consider when choosing a high yield savings account:
APY: Look for banks that offer competitive interest rates that will earn you more money.
Account minimums: Some banks require you to meet specific minimum opening deposit requirements to open an account or meet ongoing balance requirements to avoid fees or earn interest. Some banks feature tier interest rates based on your account balance. Make sure you can meet the account requirements before you apply for an account.
Fees: Most online banks don’t charge monthly fees, but it’s always good to check before opening an account. Look at other fees charged by the bank before making the leap.
Accessibility: Make sure the bank offers deposit and withdrawal options that align with your needs.
Our Favorite High Yield Savings Accounts
Below are some of our favorite financial institutions for high yield savings accounts. You can open an HYSA at most online banks and many credit unions. Choose a bank you’re comfortable with and address your specific needs.
CIT Bank Savings Connect Account: Savings Connect only requires a $100 minimum deposit, carries no monthly fees, and currently earns an impressive 4.20% APY. We keep our emergency fund at CIT Bank.
Capital One 360 Performance Savings: We use Capital One 360 Performance Savings accounts for most of our sinking funds. We absolutely love Cap One for banking and credit cards. Right now, Performance Savings accounts earn 3.40 % APY with no fees and no minimums.
Ally Bank Online Savings: I hear nothing but good things about Ally Bank from many of my personal finance friends. Ally Bank Online Savings currently earns 3.60% APY, plus no fees or minimums. Ally Bank provides tons of helpful tools for its customers, including automatic saving tools like round-ups and savings buckets to separate your money by specific savings goal.
Varo Savings Account: Opening a savings account at Varo requires first opening a Varo Bank Account. Varo is also the first US consumer fintech to receive a national bank charter. If you like higher interest rates, it’s hard to argue with Varo. The savings account earns 3.00% APY, but you can also qualify for up to 5.00% APY by meeting two monthly requirements (1. Receive direct deposit(s) totaling $1,000 or more, and 2. End the month with a positive balance in both your Varo Bank Account and Savings Account.).
Marcus Online Savings Account: A Marcus Online Savings Account earns 3.75% APY currently. The account carries no minimums and no monthly fees.
Bread Savings High Yield Savings Account: Bread Savings High Yield Savings Accounts currently earn 4.25% APY and have no monthly fees. A $100 minimum deposit is required to open an account.
Maximize Your Savings
Having a good savings account will help maximize your savings efforts and is the perfect complement to your long-term investments. Switching banks is sometimes scary, especially if you’re used to banking in person at your local bank. But the earning potential of a high yield savings account is hard to ignore.
Do yourself a favor and add a high yield savings account to your family’s money strategy this year.
What are your family’s savings goals for this year? Let us know in the comments.
Kevin Payne is the budgeting and family travel enthusiast behind FamilyMoneyAdventure.com. He’s also the host of the Family Money Adventure Show podcast, where he helps families learn to manage their money better so they can afford to do the things they love.
Kevin is a freelance writer specializing in personal finance and travel. He is a regular contributor to USA Today, Forbes Advisor, Bankrate, Fox Business, Credible, and CreditCards.com.
I think you have so much more options in the US. I think my bank has minimum amounts to be able to access higher interest rates.