If you’re like countless Americans, you keep the money you save in a standard savings account. And why not? It does the job of storing your money well enough. It’s safe from market volatility, insured by the federal deposit insurance corporation (FDIC), and easily accessible when you need it.
The only problem is that you may be missing out on higher interest rates that could help your savings grow. Standard savings accounts have very low rates — usually less than one percent. With that kind of rate, you’ll likely only make a few dollars per year on your money. With a high-yield savings account, however, you could make hundreds of dollars annually just by leaving your savings untouched. Here’s how to take advantage of high-yield savings accounts and determine whether or not they’re right for you.
A high-yield savings account is a type of bank account that pays more in interest than a traditional savings account.
High-yield savings accounts offer easy access to deposited funds, but you may have to pay fees or maintain a certain minimum balance to keep the account open.
High-yield savings accounts are great for growing money you plan to spend in the next few years, but they’re not ideal for building long-term wealth.
When choosing a high-yield savings account, be sure to evaluate the annual percentage yield (APY), fees, account accessibility, overdraft protections, and minimum deposit and balance requirements.
Popular alternatives to high-yield savings accounts are CD accounts and money market savings accounts.
What is a high-yield savings account?
A high-yield savings account is a bank account that pays a higher interest rate than what you’d get with a standard savings account at a traditional bank. The rate you earn on your deposited funds will depend on a number of factors, including the bank you choose, the national economy, where you're located, and how much you deposit into the account.
High-yield savings accounts typically come with more restrictions than regular savings accounts, but they typically offer interest rates 10 to 15 times higher than standard savings accounts do. You can open a high-yield account at nearly any financial institution, including brick-and-mortar banks, credit unions, and online banks.
Pros of a high-yield savings account
The most obvious advantage of high-yield savings accounts is their high annual percentage yields (APYs). Right now, traditional savings accounts offer a national average APY of .40%. Today’s best high-yield savings accounts, however, boast rates upwards of 4% for qualifying account holders. Better yet, that’s compound interest, which means you’ll earn money on both your original deposit and on the interest you make. As a result, your savings will snowball over time.
High-yield savings accounts aren’t the only savings vehicles that offer high APYs. In fact, CD accounts are likely to offer even higher APYs than high-yield savings accounts. However, CD accounts also require you to lock in your money for a set term –– meaning you won’t be able to withdraw it until the term is over without incurring a penalty.
On the other hand, high-yield savings accounts allow you to move money at least six times per month without penalty. In the past this was a federally mandated cap. In 2020, however, the Federal Reserve passed a motion called “Regulation D,” which removed this limit. This was part to ease financial burdens during the Covid-19 pandemic, but the Fed doesn’t have plans to reinstitute the limit. Many banks now allow unlimited transfers.
So, if you think there’s a chance you might need some of the money you’re hoping to earn interest on, a high-yield savings account offers more flexibility than a CD account.
Popular high-yield savings accounts are FDIC insured (look for “member FDIC” listed in the account terms), which means that if your bank goes out of business, the U.S. government will reimburse you for your money up to a certain limit per depositor.
High-yield accounts are also nowhere near as volatile as other popular investment vehicles like stocks. Rates on high-yield accounts are variable, which means the rate you were initially advertised may not remain the same throughout the term. Even so, you can feel secure knowing that your savings won’t won't lose value in that time, in the way they could in the stock market.
With a high-yield savings account, there’s essentially no risk of losing money. That’s why these accounts are so great for growing funds that you intend to spend within the short term, but don’t want to lose –– like a down payment for a house or car.
Great for building an emergency fund
Instead of storing your emergency fund in a traditional savings account, why not put it in a high-yield environment where it will grow while it’s not in use?
Here’s a good example. Right now, the best high-yield savings accounts offer APYs around 4%. If you made an initial deposit of $5,000, then deposited $300 every month for three years in this kind of account, you would have $17,129.01 by the end of that period (provided the APY remained 4.0% for all three years).
Conversely, if you adopted that same savings plan with a traditional savings account that offers a 0.33% APY, you’d only have $15,904.86 at the end of those three years. That’s a difference of $1,224.17. As part of an emergency fund, that $1,224 could go toward covering an expense that you would otherwise have to put on a credit card. And charging big expenses to credit cards, which are known for particularly high interest rates, can put you on the fast track to unmanageable debt.
Cons of a high-yield savings account
Not as accessible as a checking account
Despite Regulation D, some high-yield savings accounts still only allow you to withdraw funds six times per month. More than that, and you may have to pay penalties or fees. You may find banks that offer you unlimited transfers and withdrawals, while others still adhere strictly to the six-per-month withdrawal limit.
High-yield savings accounts also don’t come with debit cards or checkbooks, which means you can’t spend directly from the account. So, if you’re planning to use your high-yield savings account like a high-interest checking account, you’re going to be disappointed.
Stricter requirements to maintain
Many banks allow you to open a traditional savings account without making a minimum deposit or maintaining a minimum balance. In contrast, high-yield savings accounts usually do require minimums.
Generally, minimum deposits can range from a few dollars to $1,000 or more, and minimum balances can range from just one dollar to several thousand. If you can’t meet these minimums, you won’t be allowed to open an account or earn interest, and you may be charged a penalty fee. That said, some modern high-yield savings accounts require zero minimums. If you open an account with the right financial institution, you may find that it’s just as easy to open and maintain a high-yield savings account as it is a traditional savings account.
Bad for wealth-building
High-yield savings accounts allow you to earn more than you would in a traditional savings account. However, the interest you earn won’t be enough to keep up with inflation. In other words, your money will grow inside the high-yield savings account, but the value of the dollar will likely decrease at an even faster rate. So, if you put a bunch of cash into a high-yield account in 2020, you’ll have more than you started with in 2025, but the actual value of that money will be less due to inflation.
If your goal is long-term wealth building –– if you’re saving for retirement or your kids’ college fund, for example –– your money is more likely to help you meet your financial goals if you put it in a diversified portfolio instead of a high-yield savings account.
APY is not guaranteed
The APY you see advertised as you shop for a high-yield savings account may look enticing, but it’s not necessarily guaranteed. These rates are “variable APYs,” which means they’re subject to change at any time. Though your savings are FDIC-insured to keep you from actually losing money, there are no federal regulations that prevent you from earning less than advertised if the bank decides to lower its rate.
How to pick a high-yield savings account
APY: The interest rate you can earn on your savings is one of the most important factors to consider when choosing a high-yield savings account. The higher the APY, the better.
Minimum balance and deposit amount: Some banks have minimum balance requirements you must meet to earn interest. If you don't have enough money in your account, the bank may charge you an administrative fee or close your account altogether.
Fees: Look closely at any fees associated with opening and maintaining an account. Some banks charge monthly maintenance fees. Others levy penalties if you make withdrawals too early or often. Some of the best high-yield savings accounts have no fees, so try searching for “no-fee high-yield savings accounts.”
Online access: Some brick-and-mortar institutions require account holders to make all transactions at a physical bank location. If this doesn’t fit your schedule, look for mobile banking options, which will let you manage your money anywhere and at any time. Many online banks offer fully online savings accounts, which can be a convenient option for many savers.
Overdraft protection: Look to see whether or not your bank offers overdraft protection. If it does, how much money does it allow users to borrow against their balance without charging penalties?
Accessibility: Consider your preferred way to add and withdraw funds. Do you prefer the set-it-and-forget-it ease of direct deposits? Will you want to withdraw cash via an ATM card? These accessibility features may not be deal-breakers if you find an account with a particularly high APY, but they could help you decide between two accounts that are otherwise similar.
Alternatives to a high-yield savings account
High-yield savings accounts aren’t for everyone. Here are some other alternatives you can use to save money and reach your personal finance goals.
A money market account
Like a high-yield savings account, a money market savings account (MMA) is a deposit account that pays interest, typically at higher rates than what you would earn on traditional savings accounts. You can open an MMA at most banks and credit unions, as well as with brokerage firms such as Fidelity, Schwab, and TD Ameritrade.
In general, money market accounts are designed to both provide depositors with access to their funds, and to pay interest at competitive rates. The main difference between a savings account and a money market account is the availability of check-writing privileges. While both types of accounts allow you access to your cash, many money market accounts allow you to write checks or use debit cards, which can make it quicker and easier to make withdrawals.
A CD account
A CD account is a savings account that locks your money away for a predetermined amount of time and, in return, offers high interest rates on your funds. Most CDs have terms ranging from one month to five years. Often, rates are highest for one- to three- year CDs. Longer-term CDs are slightly riskier for lenders, who can’t be sure that national interest rates won’t plummet within that time. So, sometimes rates start to dip after the five-year term mark.
While there are many types of CDs available in today's market, including bump-up and step-up CDs, the traditional fixed-rate CD remains the most popular. With this type of CD, the interest rate remains steady throughout the life of the account.
Keep in mind that if you choose to withdraw money before the end of the term, you'll be charged an early withdrawal penalty that could eat into your earnings. CDs generally offer higher APYs than high-yield savings accounts, but the tradeoff is that your funds are much less accessible.
Explore savings accounts on Navient Marketplace
If you’re storing your short-term savings in a traditional savings account, you could be missing out on significant earnings. High-yield savings accounts are ideal for funds that you don’t plan to spend immediately but also don’t want to risk losing — like an emergency fund or a down payment for a home.
In most cases, all you have to do to open a high-yield savings account is fill out a simple application, make a minimum deposit, and maintain a minimum account balance. It’s not a lot of work considering the reward: an account that pays a much higher rate of interest than your standard savings account. Of course, high-yield savings accounts are not without their downsides. Be sure to consider the pros and cons — and your personal savings goals — before you open your own.
Ready to explore high-yield savings accounts? You can browse all kinds of savings accounts and other financial products on Navient Marketplace. Get rates, peruse eligibility requirements, and compare and contrast the accounts that best suit you.