What is a high interest savings account?


High-interest savings accounts are similar to standard ones savings account, but they pay higher interest rates. They are great for maintaining an emergency fund or achieving short-term savings goals. If you’re considering a high-yield savings account, it’s essential to understand how they work and what to look for so you can save money with achievable goals in mind.

What is a high interest savings account?

A high-yield savings account is a deposit account that offers a higher interest rate than a traditional savings account, allowing you to earn more from your savings. Some banks charge a monthly maintenance fee or limit the number of withdrawals you can make, but online banks typically offer high-yield accounts for free.

The interest rate associated with a high-yield savings account is quoted as APY, or annual percentage yield. The higher the APY, the faster your money grows. But keep in mind that this is a floating rate and it fluctuates as the Federal Reserve updates its benchmark rate. However, with a high-interest savings account, you still get the highest interest on your money. Most of today best high yield savings accounts having APYs of at least 2.15%, which is 10 times higher than the average national savings account of 0.21%.

How Do High Yield Savings Accounts Work?

When you put your money in a savings account, you want to earn competitive returns to maximize growth. The APY is applied to the balance in your high-interest savings account as compound interest. Compound interest means you earn interest on your principal balance and the interest it earns — in other words, interest on interest. Your interest accrues daily or monthly, depending on the terms of your account. The higher the interest rate and the more frequently your interest is compounded, the more you will earn over time.

A pandemic-era federal law known as Regulation D has now made it easier for you to access your savings deposits without penalty, as the limit of six monthly penalty-free withdrawals has been eliminated. However, your bank may still charge penalties for other types of transfers.

To open a high-yield savings account, you’ll need to provide your social security number and contact information, along with at least one form of identification, such as a driver’s license or passport. With a joint account, everyone who wants access must provide this information and ID.

The best online banks tend to offer the most competitive yields. Many online banks do not charge a monthly service fee, and some also have no minimum balance or deposit opening requirements.

Advantages of a high interest savings account

  • Higher APYs: The interest rate of a high-yield savings account is usually higher than that of a traditional savings account.
  • Safety: Money held in an FDIC-insured bank is protected up to $250,000 per depositor, per account type, per financial institution. FDIC insurance protects your money in case the bank goes bankrupt.
  • No monthly costs: Many high-yield savings accounts don’t charge a monthly fee, although some do. Be sure to check the terms and fees of your high-yield savings account before opening it to avoid confusion. Please note that some accounts may waive monthly fees if you meet a minimum balance.
  • Accessibility: You can access your money in a high-yield savings account; however, your bank may charge fees in some circumstances.
  • Compound Interest: Many high-yield savings accounts increase interest on a daily basis.

Disadvantages of a high interest savings account

  • Variable interest: The interest on a high-interest savings account is variable and can therefore change at any time.
  • Higher minimum deposit requirements: Some high-yield savings accounts have higher minimum deposit requirements than your everyday savings account.
  • No risk but limited return: While many high-yield savings accounts offer a variable APY, they are still lower than other financial instruments, such as money market accounts.

What should you pay attention to with a high-interest savings account?

When choosing a high-yield savings account, keep the following terms in mind:


You want the highest possible APY with a high-yield savings account. Because rates can change at any time, it is good to stay informed about the current rates.

Minimum balance requirements

Some banks have a minimum balance requirement to earn the listed APY, while other banks offer the same APY for all balances. Make a note of any minimum balance requirements to avoid surprises.


Monthly maintenance fees and minimum balance fees can eat into your savings. If you’re considering an account with fees, consider the total fees and associated due dates to avoid surprises.

High-yield savings account alternatives

Several other account types can help you grow your money, including:

  • Money market accounts are similar to savings and checking accounts because you receive interest as in a savings account. You can still make purchases that are linked to a payment card such as a checking account.
  • A certificate of deposit, or CD, is a savings account that pays a fixed interest rate for a fixed term. However, you cannot withdraw your money from a CD until it has been in the account for a certain amount of time, called a term.
  • Investment accounts can help you grow your money over time, but they come with more risk. It’s important to remember that the money in your savings account is federally insured up to $250,000, while non-deposit investment products are not insured.

it comes down to

Whether you want to build an emergency fund or just set aside extra cash, you can invest with peace of mind knowing that high-yield savings offer competitive returns with minimal risk.

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