A high-yield savings account can be a great place to park your emergency fund or money you're setting aside for other financial goals. Interest rates are often competitive, which allows your savings to work a little harder for you.
The question comes down to finding the right account to fit your needs. You can choose the best high-yield savings account by comparing interest rates, fees and accessibility to your money, among other factors. Here are some important things to consider when shopping around.
1. Annual Percentage Yield (APY)
One of the main benefits of a high-yield savings account is its ability to boost your earning power. These accounts pay out interest, also known as an annual percentage yield (APY). This is the amount you stand to earn over the course of a year. The higher the APY, the more interest your money will earn. In September 2024, the Federal Deposit Insurance Corp. (FDIC) put the average interest rate on a traditional savings account at just 0.46%. High-yield savings accounts typically pay out much more. As of September 2024, some were touting APYs up to 5.31%.
What Affects APYs on High-Yield Savings Accounts?
APYs on savings accounts fluctuate and are closely linked to the federal funds rate. This is a benchmark rate that's set by the Federal Reserve. Financial institutions use it when borrowing and lending between each other—but it also influences the rates they offer on savings accounts, certificates of deposit (CDs) and loans. When the federal funds rate goes up or down, APYs on high-yield savings accounts usually do the same.
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2. How Often Interest Compounds
Compound interest can put even more muscle behind your savings. With a high-yield savings account, you'll earn interest on both:
- Your deposits
- Any interest you've already been paid
In other words, your interest is earning interest. When comparing high-yield savings accounts, look at how often interest compounds. That may be daily, monthly, quarterly, semi-annually or annually. A more frequent compounding schedule is ideal because it allows your money to grow at a faster rate.
3. FDIC or NCUA Insurance
Be sure to go with a bank that's insured by the FDIC. (FDIC membership should be indicated on the bank's website, but you can also use the FDIC's BankFind database.) If you open a high-yield savings account with an FDIC-insured bank, you'll be covered for up to $250,000 per depositor, per account category.
That can provide financial peace of mind: If the bank fails, some or all of your money will be safe. The National Credit Union Administration (NCUA) offers similar coverage for credit unions. You can use their search tool to find a federally insured credit union.
4. Fees
When seeking a high-yield savings account, be on the lookout for fees. They could add up and deplete your earnings. Some common bank fees include:
- Maintenance fees: This service fee, which is typically charged monthly, could cost you up to $25 per month.
- Minimum balance fees: You may be required to maintain a minimum balance. If you don't, you could be hit with a fee or a lower APY. Some banks may require you to keep tens of thousands of dollars in your account.
- Overdraft fees: You might incur a fee if your account balance goes into negative territory. About $30 per transaction is the norm.
- Inactivity fees: Some banks will tack on a fee if you don't make a deposit or withdrawal for an extended time period (typically six months). That could cost you roughly $5 to $20.
- ATM fees: Not all high-yield savings accounts have wide ATM networks. Using an out-of-network ATM could trigger a fee of $2 to $5. That's on top of any fees that may be imposed by the ATM operator.
5. Opening Deposit Requirement
Some high-yield savings accounts require a minimum deposit to get started; others don't. This is something you'll want to clarify when comparing accounts because the amount can range widely from one financial institution to the next, though most are typically in the $25 to $100 range.
In some cases, the minimum deposit could be as high as $25,000. That isn't necessarily a bad thing. If you're starting with a large chunk of money, which may be the case if you're looking to transfer your savings into a new account, that high opening deposit could unlock a better APY.
6. Access to Money
It isn't set in stone, but many high-yield savings accounts limit free electronic transfers and withdrawals. (You'll likely be capped at six per month.) Read the fine print to understand how easy it will be to access your money. It's an important detail, especially if you run into a financial emergency. Consider the following when choosing a high-yield savings account:
- How much money can you move out of the account per day?
- How long will it take to receive a transfer from the account?
- Is there a bank branch or in-network ATM nearby?
The Bottom Line
If you're trying to figure out how to choose a high-yield savings account, start by comparing interest rates, fees, account requirements and liquidity. These things can guide you toward an account that best fits your needs. In the end, the right account can provide a safe space for your savings—and help you grow your money faster.