What a high yield savings account is and how to get one

A high yield savings account is a regular savings account that pays a higher interest rate than most brick-and-mortar banks. You open one by choosing a bank or credit union, providing identification and proof of address, and depositing money. The account works exactly like any savings account—you can withdraw whenever you want—but the money you keep in it earns more interest each month.

Most high yield accounts are offered by online banks or credit unions, not by the big national banks you see on street corners. Online banks have lower overhead costs, so they pass higher rates to depositors. You cannot walk into a branch to deposit cash, but you can transfer money in from another bank account, deposit checks by phone camera, or arrange direct deposit from your employer.

The interest rate on these accounts changes based on what the Federal Reserve does with its benchmark rate. When the Fed raises rates, banks raise what they pay you. When the Fed cuts rates, your earnings drop. The rate you see advertised today may be different next month, so check the current rate before you commit.

Key Takeaways

  • High yield savings accounts are offered mainly by online banks and credit unions, and you open one by providing ID, proof of address, and an initial deposit.
  • The interest rate you earn changes when the Federal Reserve changes its benchmark rate, so the APY advertised today may be lower or higher in a few months.
  • You can deposit money by electronic transfer from another bank, mobile check deposit, or direct deposit from your paycheck.
  • Your money is insured up to $250,000 per account at FDIC-insured banks or up to $250,000 per account at NCUA-insured credit unions, so your principal is protected even if the bank fails.

Where to open a high yield savings account

Online banks are the most common source. Banks like Marcus, Ally, American Express Personal Savings, and Discover Bank offer high yield accounts with no monthly fees and no minimum balance requirements. You can compare current rates on their websites or on rate-tracking sites like Bankrate or DepositAccounts, which update daily.

Credit unions also offer high yield savings accounts, sometimes called share savings accounts. You must be a member to open one, which usually means living in a certain area, working for a specific employer, or belonging to an organization. Credit union rates vary widely, so call your local credit union or check their website to see what they offer.

Some traditional banks offer high yield accounts online while keeping lower rates in their branches. If you already bank somewhere, check whether they have an online savings product before opening a new account elsewhere.

What you need to open an account

You will need a government-issued photo ID (driver's license, passport, or state ID card), proof of your current address (a recent utility bill, lease, or bank statement), and your Social Security number. Some banks verify this information instantly online; others may ask you to upload documents or call to confirm.

You will also need a way to fund the account. Most banks let you link an existing checking account and transfer money electronically. If you do not have another bank account, some banks accept wire transfers or allow you to mail a check. A few banks let you set up direct deposit from your paycheck without an initial transfer.

The minimum opening deposit varies. Many online banks have no minimum at all—you can open an account with $0 and deposit money later. Others require $25 or $100. Check the bank's website for the current requirement before you start the application.

How to deposit and withdraw money

The most common way to deposit money is an electronic transfer from your checking account at another bank. You provide the other bank's routing number and your account number, and the money moves in one to three business days. Once you have made one transfer, most banks let you set up recurring transfers on a schedule you choose.

Mobile check deposit lets you photograph the front and back of a check and submit it through the bank's app. The check clears in one to three business days, and you do not have to mail anything. Some banks limit how many checks you can deposit this way per month or per day.

Direct deposit from your employer is the fastest way to get money in. You provide your employer with the bank's routing number and your account number, and the money lands on payday without any action from you.

Withdrawals work the same way as deposits. You can transfer money back to your checking account at another bank in one to three business days. Some banks also issue a debit card, though high yield accounts often do not come with one because they are meant for saving, not frequent spending. If you need cash immediately, transfer to your checking account first, then withdraw from an ATM.

Fees and account restrictions

Most high yield savings accounts have no monthly maintenance fee, no overdraft fees (because you cannot overdraft a savings account), and no minimum balance fee. Some banks charge a fee if you make more than six withdrawals per month, though this rule has become less common since the Federal Reserve suspended it in 2020. Check the bank's fee schedule before you open.

Interest is usually compounded daily and deposited monthly. That means the bank calculates how much interest you earned each day, adds it to your balance, and pays you once a month. The more often interest compounds, the more you earn, but the difference between daily and monthly compounding is small for most account sizes.

Some banks limit how much you can deposit per month or per year, though this is rare. If you plan to deposit large sums regularly, ask the bank about deposit limits before you open.

How your money is protected

Money in a high yield savings account at an FDIC-insured bank is protected up to $250,000 per account. If the bank fails, the Federal Deposit Insurance Corporation reimburses you for the full amount, up to that limit. If you have more than $250,000, you can open accounts at different banks to keep all your money insured.

Money in a credit union account is protected up to $250,000 per account by the National Credit Union Administration (NCUA), which works the same way as FDIC insurance. Check whether a credit union is NCUA-insured before you open an account.

Your account is also protected against fraud. If someone uses your account number or password without permission, the bank must investigate and usually refunds unauthorized transfers within a few business days. Report fraud as soon as you notice it.

Comparing rates and switching accounts

Interest rates on high yield savings accounts change frequently. A rate that is competitive today may fall behind in a few weeks. Check the current rates on your account and on other banks' websites every few months. If another bank is paying significantly more, you can open a new account there and transfer your money over.

Switching accounts takes about a week. Open the new account, transfer your money, and wait for it to arrive. Once the transfer clears, you can close the old account. There is no penalty for closing a savings account, and closing one account does not affect your credit score.

Some people keep accounts at multiple banks to take advantage of different rates or to keep money organized by purpose. There is no limit to how many savings accounts you can have, as long as each one is at a different bank (or at the same bank under a different ownership category, like individual versus joint).

Frequently Asked Questions

Can I withdraw money from a high yield savings account anytime I want?

Yes. High yield savings accounts have no withdrawal restrictions. You can take money out whenever you need it, though transfers to another bank take one to three business days. If you need cash the same day, transfer to your checking account first, then visit an ATM.

What happens to my interest rate if the Federal Reserve cuts rates?

Your interest rate will drop, usually within a few days or weeks. Banks lower the rates they pay depositors when the Fed lowers its benchmark rate. The new rate will be lower than what you see advertised today, but it may still be higher than rates at traditional banks.

Do I need a minimum balance to earn interest?

Most high yield savings accounts have no minimum balance requirement. You earn interest on whatever amount you have in the account, even if it is $1. Some banks pay a slightly higher rate if you maintain a larger balance, but this is uncommon.

Is my money safe in an online bank?

Yes, as long as the bank is FDIC-insured. Check the bank's website or the FDIC's bank search tool to confirm. FDIC insurance protects your money up to $250,000 per account if the bank fails. Online banks are regulated the same way as traditional banks.

Can I use a high yield savings account to pay bills?

Not directly. High yield savings accounts are designed for saving, not for frequent transactions. You can transfer money to your checking account and pay bills from there, but most high yield accounts do not come with a debit card or bill pay feature.