What is a high-yield savings account? Definition and what to consider

A high-yield savings account is essentially the same as a standard savings account, but it pays a much higher yield on your money. The national average yield on savings accounts is 0.57 percent APY. However, you can find high-yield savings accounts that pay over 4 percent — nearly 20 times more than the average.

What is a high-yield savings account?

A high-yield savings account is a savings account that pays a high annual percentage yield (APY). An account’s APY indicates how much interest you earn in one year, taking compounding into account (unlike simple interest). Top-yielding savings accounts are paying upwards of 5 percent.

What to look for in a high-yield savings account

When you’re comparing high-yield savings accounts, there are features to consider, including:

• Annual percentage yield: When choosing a high-yield savings account, you will want to find one with a high APY. The higher the APY, the more you will earn on your money. Currently, a competitive high-yield savings account pays up to 5 percent or more. Use Bankrate’s Compound Interest Calculator to see how much you can earn, depending on the APY.
• Fees: Some banks charge monthly fees on their savings accounts. Usually, you can avoid these fees if you meet certain requirements, such as maintaining a minimum balance or making a minimum deposit each month. If possible, look for a high-yield savings account that doesn’t charge monthly fees at all. If you have to go with an account that charges fees, make sure that you can easily meet the fee waiver requirements each month. Other fees to watch out for include a fee for closing your account early, an excessive transaction fee and an insufficient funds fee. 
• Minimum deposit to open: While you can easily find a savings account without a minimum deposit required, some banks might require a certain deposit to open an account. For banks that do require a minimum deposit, this typically ranges from $25 to $100 but can be more in some cases.
• Insured by the Federal Deposit Insurance Corp. (FDIC): When choosing a bank or credit union, you’ll want to ensure it is insured by the Federal Deposit Insurance Corp. (FDIC) or for credit unions, the National Credit Union Administration (NCUA). The FDIC insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category. This guarantees that your money is safe if a bank fails, as long as your balances are within the limits and guidelines.
• Various personal preferences: Some other things to think about before opening a high-yield savings account is do you prefer a bank with physical branches you can visit, or is an online bank just as good? You may also want to consider how a bank’s app and digital experience is rated as well as customer service.

Best high-yield savings accounts

A high-yield savings account can be a safe place to earn interest on your money while keeping it easily accessible for emergencies or other expenses.

Learn more

Pros and cons of a high-interest savings account

Pros

• A higher APY: A high-yield savings account is going to have a higher APY than a standard savings account or a checking account. Because of this greater APY, you can grow your money faster.
• Easily access funds: The perk of a savings account is you can readily access your money whenever you need it. This makes a high-yield savings account a great place to store your emergency fund or save for short-term goals. On the other hand, a certificate of deposit (CD) locks in your money for a set term, and if you need the money before the CD matures, you will likely pay an early withdrawal penalty.
• Low risk: If your bank is FDIC-insured, a high-yield savings account does not have the risk level of other investments.

Cons

• Poor options for long-term goals: Although high-yield savings accounts have high yields compared with standard savings accounts, they don’t pay enough interest to hit long-term savings goals or often even keep up with inflation. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds are likely to be a better choice.
• Variable interest rates: Unlike CDs which have a predictable, fixed-interest rate, the APY on a high-yield savings account is variable, meaning it can increase or decrease at any time. 
• May have more requirements: High-yield savings accounts may have more requirements than a typical savings account. For example, you might need to have a larger deposit to qualify to open the account at certain banks.
• May be a bit harder to access your money: High-yield savings accounts, when they’re opened at a separate financial institution from your checking account provider, can be a bit more difficult to access. For example, it can take a couple of days to transfer funds to your checking account. Additionally, you’re typically limited to six withdrawals per month from savings accounts.

How to open a high-yield savings account

In order to open a savings account, you’ll need to provide information about yourself. This will usually include your name, email address, home address, phone number and your social security number if you have one. 

To open a savings account, you’ll first want to find the right institution for you, whether that’s a traditional bank such as Chase and Bank of America, or an online-only bank such as Ally Bank or Marcus by Goldman Sachs. (Keep in mind online-only banks typically pay higher rates than traditional banks with brick-and-mortar locations.)

After you’ve found the right account for you, just go to the relevant bank’s website and find the link that takes you to the online application. To submit the application, you’ll need information about yourself and some documents, including your social security number and government-issued identification.

Top savings accounts to consider

Make sure to shop around to find the best online savings account that’s accessible, pays competitively and meets your needs. Here are some top options:

LendingClub Bank

LendingClub Bank offers a very competitive yield if you deposit $250 or more into its LevelUp Savings account. You also don’t need to keep a minimum amount in the account, and you don’t have to make an opening minimum deposit. 

This could be a good account for those who are both able to deposit $250 per month into their account and also like having an incentive – a higher yield – to save.

LendingClub Bank’s standard APY if you don’t make a monthly deposit of $250 is still competitive.

EverBank 

EverBank, formerly TIAA Bank, offers a very competitive yield on its EverBank Performance Savings account. Unlike LendingClub Bank, you don’t need to deposit a certain amount into your account each month to earn a very competitive yield. And EverBank doesn’t have a monthly service fee.

BrioDirect

BrioDirect, a trade name of Webster Bank, offers a very competitive APY on its High-Yield Savings account. But you’ll need at least $5,000 to open this account. The account doesn’t have a monthly service fee.

Bottom line

A high-yield savings account is a great option for those looking to earn a competitive yield on their savings. While these accounts often offer significantly higher interest rates, it’s important to compare APY, fees and other factors when choosing the account that is best for you. Additionally, FDIC protection ensures your money is safe.

—Former Bankrate writer René Bennett and Bankrate’s Matthew Goldberg contributed to an update of this story.