In this article:
Offering above-average interest rates, a high-yield savings account can be a valuable tool for managing your personal finances. If you don't have a high-yield savings account yet, there are plenty of benefits to opening one. Reasons to put your money in a high-yield savings account include the ability to maximize interest earnings, easy access to your funds, flexible account options and security. Here's a closer look at seven benefits a high-yield savings account can offer.
1. Above-Average APY
High-yield savings accounts earn a higher annual percentage yield (APY) than standard savings accounts. The average APY on a traditional savings account was just 0.46% in December 2023, according to the Federal Deposit Insurance Corp. (FDIC). In comparison, some high-yield savings accounts were earning APYs of 5% or more.
Interest rates for high-yield savings accounts are usually variable and may change at any time. Typically, savings account APYs rise or fall with the federal funds rate set by the Federal Reserve. When the federal funds rate increases, banks usually raise APYs on interest-bearing accounts. At the end of 2023, APYs on high-yield savings accounts were higher than the rate of inflation. Experts predict these rates will decrease in 2024, but only slightly.
Find High-Yield Savings Accounts
2. Compound Interest
Money in a high-yield savings account earns compound interest. In addition to earning interest on the money you deposit in your savings account, you also earn interest on the interest that accumulates. This helps your savings grow faster, getting you closer to your financial goals.
Check the terms of any high-yield savings account you're considering to see whether interest compounds daily, monthly, quarterly or annually. The more frequently the interest compounds, the more rapidly your savings will grow.
3. Low Risk
Investing and saving for retirement is an important part of financial planning. However, even low-risk investments such as bonds pose some level of risk. When your money is in a federally insured savings account, however, you can rest easy knowing it's safe.
High-yield savings accounts held at federally insured banks and credit unions are guaranteed up to $250,000 per account owner, per ownership category and per institution. Even if the financial institution fails, you won't lose your money. To guarantee your money's security, check to make sure the bank or credit union is affiliated with the FDIC or National Credit Union Association (NCUA) before opening a high-yield savings account.
4. Easy Access
Money in a high-yield savings account can be accessed at any time. This is a significant advantage over certificates of deposit (CDs), another low-risk savings option. If you need to withdraw money from a CD before its term ends, you'll probably have to forfeit some or all of your interest earnings as a penalty.
You can withdraw money from a high-yield savings account by transferring it into a different bank account, purchasing a cashier's check or getting cash from a bank teller or ATM. In some cases, you can even pay bills directly from your savings account. Keep in mind that some banks limit free withdrawals or transfers from your savings account to six per month before charging a fee.
5. Simple to Manage
Financial strategies such as using a brokerage account to trade securities or investing in real estate can be complicated, requiring a lot of time and attention to help them pay off. A high-yield savings account, on the other hand, offers low-maintenance ease. Once you've set up automatic deposits or transfers into your high-yield savings account, you can "set it and forget it" to a large degree.
Of course, you'll want to check on your savings regularly to watch it grow and monitor any changes to your APY. You may also need to adjust the amount you're saving as your budget, income or financial goals change. Most banks offer mobile apps you can use to easily monitor and manage your savings account whenever you like. Some banking apps also include budgeting tools that can sync with your savings account transactions, further simplifying your financial life.
6. Flexibility
You can open a high-yield savings account online quickly and easily. Once your account is open, you can use it to save for any purpose you choose, from a down payment on a home or new car to your dream vacation or your wedding.
You can even open multiple savings accounts to save for different financial goals. For example, you might have one high-yield savings account for your emergency fund, another for your summer vacation and another to save for non-annual expenses such as insurance premiums or property taxes.
7. Low or No Fees
Unlike investing, which usually involves some type of fee for advisory services or performing transactions, high-yield savings accounts are frequently free. Online banks are the most likely to offer no-fee high-yield savings accounts. Because they don't have physical locations, these banks have lower overhead and can pass the savings on to customers.
That said, some high-yield savings accounts do charge fees, so check the details before you open an account. Banks and credit unions may charge fees for monthly savings account maintenance, overdrafts, using non-network ATMs, account inactivity, excessive withdrawals or dipping below a certain minimum balance. There are often ways to waive the fees, such as by maintaining the required amount in your account.
The Bottom Line
Although opening a high-yield savings account can offer many benefits, it won't help you build a credit history. That's because bank account activity typically isn't reported to credit bureaus and doesn't affect your credit score. However, bank accounts may come with credit score monitoring to help you keep tabs on the health of your credit. If yours doesn't, consider enrolling in Experian's free credit score monitoring to keep tabs on where you stand. Access your Experian credit report, get alerts of important changes to your credit score and use the interactive FICO® Score☉ tracker to see how your score changes over time.