What Is a High-Yield Savings Account?

You would be well-served by saving a portion of each paycheck for emergencies, such as an illness, or for long-term goals, such as a vacation or down payment for a car. You would be even better-served if your money were placed in a high-yield savings account.

Some banks are turning their focus to high-yield savings accounts since consumers can easily move money back and forth from a checking account.

While the majority of savings accounts provide only nominal interest rates – especially since the Federal Reserve slashed the federal funds rate to near zero – many online banks are offering attractive rates that are nearly as high as certificates of deposit.

The better high-yield accounts are offering about 20 times the national average bank rate of 0.06%, but shopping and comparing rates online will give you the highest interest rates because they change frequently.

“Having cash in savings gives you easy access to money in an emergency,” says Daren Blonski, managing principal of Sonoma Wealth Advisors in California.

What to Look for in a High-Yield Savings Account

Good high-yield savings accounts provide interest rates that are more than 1%, have a robust online/mobile platform so you can effortlessly transfer money into a checking account and have no monthly fees that will eat up your balance.

These accounts should also be federally insured, have a low minimum opening deposit and not require consumers to deposit a large amount of cash to earn the highest interest rate.

“Everyone needs emergency savings, which must be freely accessible, free from risk of loss and earn a return that is competitive with inflation,” says Greg McBride, senior vice president, chief financial analyst for Bankrate, a financial data provider. “The top-yielding online savings accounts check all three of those boxes.”

An ideal account wouldn’t charge you a fee if you didn’t maintain a minimum balance, and it would offer a competitive yield regardless of how much you kept in your account, he says.

“Always read the fine print to make sure you’re not missing any key provisions,” McBride says.

Accessing Your High-Yield Savings Account

Normally, withdrawals from your high-yield savings account would be limited if you’re using it as an emergency fund or for long-range goals, like a down payment on a house or renovations at your home.

The amount of activity in your savings account is governed by the federal Regulation D that banks must comply with. The federal rule limits the number of times consumers can withdraw money from their savings accounts to six each month. (In-person withdrawals via a teller or ATM don’t count toward the six, however.) Banks and credit unions may charge customers a penalty such as $10 for each transaction if they go over their allotment, but many are waiving the fee during the coronavirus crisis.

One reason behind the rule is to prevent consumers from using savings accounts in the same manner as checking accounts.

“A top-yielding online savings account is ideal for the emergency fund or as a temporary parking place for money needed soon for a down payment,” McBride says. “If your intended expense – a wedding or tuition, for example – is more than six months away, consider a certificate of deposit to potentially capture a bit more return.”

Barclays

Capital One

Discover Bank

Synchrony Bank