Are High-Yield Savings Accounts Worth It? Here’s Everything You Need to Know

Get a higher interest rate and grow your savings.

The stock market has been volatile in recent years, leaving many investors yearning for a less risky way to compound their wealth. One of the simplest and safest ways to make your money earn more money is by opening a high-yield savings account, which has higher-than-average interest rates compared to traditional savings accounts.

If you’re not sure about your current savings account’s interest rates, you’re not alone: A 2018 survey conducted by Marcus by Goldman Sachs found that about 60 percent of Americans don’t know their savings account’s annual percentage yield. But if your savings aren’t earning as much interest as it could be, you’re basically leaving free money on the table.

Keep reading to learn more about high-yield savings accounts, and find out if they’re a good choice to grow your money.

What Is a High-Yield Savings Account?

A high-yield savings account is a savings account that offers higher interest rates than traditional savings accounts, which enables you to make the most of the savings you have. You won’t find a specific rate that’s considered “high yield,” but generally, if it’s more than 1.00% APY, you’re getting a high-yield rate for your savings.

High-Yield Savings Account vs. Traditional Savings Account

Unlike standard savings accounts with low-interest rates, high-yield savings accounts offer a higher rate, which translates into a more impressive return on the money you save. Another benefit of these bank accounts is that they’re insured by the Federal Deposit Insurance Corp., so you’re guaranteed that up to $250,000 per account is safe and secure.

Find Out: How the Average Savings Account Interest Rate Compares to Yours

Pros and Cons of High-Yield Savings Accounts

Before putting your money into a high-yield savings account, consider the benefits and drawbacks of this type of bank account. Pros of having a high-interest savings account include:

  • High-interest rates: With higher rates than traditional accounts, your money will grow quicker.
  • It’s a safe investment: Your funds are insured by the FDIC up to $250,000, so there’s no risk of losing money — only gaining it.
  • Easily transfer funds: Unlike with a certificate of deposit, you can transfer and withdraw funds whenever you wish without penalty, up to six times per statement cycle.

However, there are cons as well:

  • Your money might grow more quickly elsewhere: CDs tend to have higher interest rates than high-yield savings accounts, and you might also be able to compound your wealth more if you put it into other investments such as stocks.
  • No immediate access to funds: Most high-yield savings accounts are offered by online-only banks, which means you can’t go to a bank branch to withdraw funds if you need them immediately. Typically, you would have to transfer funds to a checking account to be able to access them, which could take a couple of days.

What to Look for in a High-Yield Savings Account

Before you open a high-yield savings account, make sure it meets some qualifications, so you don’t risk losing money in other ways. Here are some factors to consider when choosing the best account for your money:

  1. Look for an account insured by the FDICIf the financial crisis taught consumers anything, it’s that banks aren’t invincible. Wherever you decide to open an account, be sure the institution is FDIC-insured, or NCUA-insured if you choose a credit union.
  2. Choose an account with no fees. A great interest rate isn’t great if you lose your return to high fees, so do your homework and look for a savings account that’s free to own.
  3. Verify the bank has good reviews. Find out what other customers have to say about the financial institution’s customer service, technology, products and features.
  4. Find out about the minimum balance required. A minimum balance is the least amount of money that you’ve had in your bank account during the whole month. If the account has minimum balance requirements, your balance has to meet the requirements during each statement cycle or you’ll owe a fee. You can avoid this by using an online bank; typically, online banks offer great rates and other perks like no minimum balance due to a lack of overhead.
  5. Ask if there’s a required initial deposit. If you decide on a high-yield savings account, find out the initial deposit requirement. The lower the initial deposit requirement, the better.
  6. Check out the interest rates. High-yield savings account rates are an important aspect to consider because you need to know how much your money will earn. Keep in mind that sometimes it might be better to accept a lower rate if the fees and minimums are also lower. Make sure you review the annual percentage yield — how much money you earn on your deposit over the entire year, including compounding interest.
  7. Explore the monthly transaction limit. Many bank accounts limit the number of monthly transactions you can make from an account, which can sometimes determine if you’re eligible to have the fee waived for your account maintenance. You need to be aware of how many deposits or withdrawals you can make each month.
  8. Confirm you’ll have access to digital banking. If you like to bank on the go, choose an account with mobile and online banking. Nowadays, it’s hard to find one without it.

Find Out: Why Online Savings Accounts Have Higher Interest Rates

High-Yield Savings Account Options

When you’re comparing high-yield savings accounts, you’ll find the best rates at online banks because they have fewer overhead costs and can pass those savings on to customers. A high-yield online savings account is pretty easy to find, but not everyone is comfortable banking online. If you prefer a bank you can visit in person, check with local banks in your area.

High-Yield Savings Account Rates at Top Banks

Review the chart for pertinent information about high-yield savings accounts from six popular financial institutions. Consider choosing one of these high-interest savings accounts for your financial plan.

High-Yield Savings Account Rates at Top Banks
BankAccountAPYMinimum BalanceMonthly Fees
Ally BankOnline Savings Account2.20%$0None
American Express Personal SavingsHigh Yield Savings Account2.10%$0None
FNBO DirectOnline Savings Account2.25%$0; $1 minimum opening depositNone
HSBC DirectDirect Savings2.25%$1 minimum opening depositNone
Marcus by Goldman SachsOnline Savings Account2.25%$0None
Synchrony BankHigh Yield Savings2.25%$0None

To put these APYs into perspective, the average interest rate for a savings account is 0.10% APY, as of March 2019. That means an account earning 2.00% APY or higher is earning 20 times the national average.

To see how putting money into a high-yield savings account translates into real money, let’s say you open an account with $10,000, and add $100 every month. With an APY of 2.10%, you’d have earned $1,412 in interest in five years. Even if you just let the $10,000 sit there without adding any more money, you’d have earned $1,095 in interest in five years.  If you put $10,000 into a savings account with the average 0.10% APY, you’d only have earned $50.10 in five years.

High-Yield Savings Accounts and Your Investing Strategy

Ideally, a high-yield savings account is just one part of your overall financial portfolio and investment strategy. It’s definitely important to have some liquid assets in a savings or checking account so that you can access funds when you need them to pay off credit card bills or cover emergency expenses, but you should also allocate some funds for other interest-earning investments such as money market accounts, CD accounts or mutual funds that could earn higher returns.

More Options: 10 Low-Risk Ways to Invest Your Money

Bottom Line on High-Yield Savings Accounts

High-yield savings accounts rates can help you grow your savings at a higher rate than those available through traditional savings accounts. When you search for a high-yield savings account, make sure you take into account factors such as the rate, account maintenance fee, minimum balance and deposit requirements, number of monthly transactions allowed, customer reviews and whether the institution is FDIC-insured.

These accounts are a good option for people who want to grow their money with little risk and want the flexibility to be able to access their funds when they need them. For those with a higher risk tolerance and those who don’t need immediate access to their funds, there are alternatives that could pay off more in the long run.

Alternatives to High-Yield Savings Accounts

If you’re not sure that high-yield savings accounts are the best place to invest your money, consider these alternatives to earn interest:

  • Stocks: Although stocks are a higher-risk investment, they also offer the potential for higher returns. Consider small- or mid-cap stocks if you’re looking for a relatively safe investment.
  • Short maturity bonds or a short-term bond exchange traded fund: Shorter terms mean less risk in a volatile market.
  • Certificate of deposit: These are safe investments that typically offer higher interest rates than savings accounts, even high-yield savings accounts.
  • IRA: If you’re looking for a long-term investment vehicle, a retirement account such as an IRA will often provide better returns.

Click through to read more about the best ways to grow your money this year.

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Barri Segal contributed to the reporting for this article.