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

A high yield savings account is a regular savings account that pays you more interest on the money you keep in it. Banks and credit unions offer these accounts, usually online-only, because they have lower costs than branches on every corner. That lower cost means they can pass more of their earnings to you as interest. You open one the same way you open any bank account: you pick a bank, give them your personal information, and deposit money.

The main difference between a high yield account and a regular savings account at your local bank is the interest rate — how much the bank pays you to let them hold your money. A regular savings account at a big bank might pay you almost nothing. A high yield account at an online bank might pay you five or six times more. Over a year, that difference adds up.

You do not need a minimum balance to open most high yield accounts, though some banks ask for $1 or $25 to start. You can add money whenever you want, and you can take money out whenever you need it — there are no penalties for withdrawal like there are with certificates of deposit.

Key Takeaways

  • High yield savings accounts are offered by online banks and some credit unions, and you open one by providing your name, address, Social Security number, and initial deposit through their website.
  • Interest rates on these accounts change over time and vary between banks, so comparing rates at three or four banks before you open an account takes 15 minutes and can save you money.
  • Your money is insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per account, so your deposits are protected even if the bank fails.
  • You can withdraw money from a high yield account whenever you need it without penalty, making it different from a certificate of deposit or money market account with withdrawal limits.

Which banks offer high yield savings accounts

Most online banks offer high yield savings accounts. Some of the larger ones include Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings, Discover Bank, and Capital One 360. Credit unions also offer high yield savings accounts, though the rates vary widely — you can search for credit unions in your area through CO-OP or Allpoint to see what they offer.

The banks that have physical branches in your town — Chase, Bank of America, Wells Fargo — typically offer much lower interest rates on savings accounts. If you already have a checking account at one of these banks, you can open a savings account there, but you will earn less interest than you would at an online bank.

The interest rate each bank pays changes regularly, sometimes weekly. Before you open an account, visit the websites of three or four banks and write down their current rates. The difference between 4.5% and 5.3% does not sound like much, but on $10,000 it means an extra $80 per year in your pocket.

What you need to bring to open an account

You will need your Social Security number, a government-issued ID (driver's license or passport), your current address, and your phone number. You will also need a way to make your first deposit — either a debit card, a check from another bank account, or a wire transfer.

The bank will ask you to create a username and password, and they will send you a confirmation email. Some banks ask you to verify your identity by answering questions about your credit history or by uploading a photo of your ID. This usually takes a few minutes.

If you are opening an account at a credit union instead of an online bank, you may need to become a member first. This usually means paying a small membership fee (often $1 to $25) and signing a membership agreement. The credit union will explain this before you open the account.

How to compare rates and pick the right bank

The interest rate is the main reason to choose one high yield account over another. Visit the websites of at least three banks and note their current annual percentage yield (APY) — this is the rate they advertise. Write it down along with the bank name and the date you checked, because rates change.

Do not assume the highest rate today will stay the highest. Banks raise and lower their rates based on what the Federal Reserve does and how much competition they face. Once your money is in the account, you can move it to a different bank if rates drop significantly, though this takes a few days.

Also check whether the bank charges monthly fees. Most high yield accounts have no monthly fee, but some charge $5 or $10 per month if you do not keep a minimum balance. Read the fee schedule on the bank's website before you open the account — it is usually under "Pricing" or "Fees."

The step-by-step process of opening the account online

Start by going to the bank's website and clicking the button that says "Open an Account" or "get your free guide." The bank will ask you to choose the type of account — select "Savings Account" or "High Yield Savings Account," depending on what they call it.

Enter your personal information: full name, date of birth, Social Security number, address, phone number, and email. The bank will verify this information against credit bureaus and government records. This usually takes a few minutes, though sometimes it takes a few hours.

Next, you will set up your login credentials — a username and password. Write these down or save them in a password manager so you do not forget them. Then you will choose how to fund the account. Most banks let you link a checking account from another bank and transfer money electronically, which usually takes one to three business days. Some banks also accept wire transfers, which are faster but may cost money.

Once the bank confirms your identity and receives your deposit, your account is open. You can log in and see your balance. The bank will send you a debit card in the mail if you want one, though you do not need it to move money in and out of the account.

How interest is calculated and when you receive it

The bank calculates interest on the balance in your account every day. The interest rate they advertise — say, 5.0% APY — is an annual rate, meaning that is what you would earn if you left the money untouched for a full year. If you have $10,000 in the account at 5.0% APY, you would earn about $500 in a year, or roughly $42 per month.

The bank adds the interest to your account monthly, usually on the last day of the month. You do not have to do anything to receive it — it appears automatically. Once the interest is in your account, it becomes part of your balance, and the bank pays you interest on that interest the next month. This is called compounding.

If you withdraw money during the month, the bank calculates interest only on the balance you actually held. If you had $10,000 for 20 days and then withdrew $5,000, the bank would calculate interest on $10,000 for 20 days and $5,000 for 10 days, then add the total to your account.

FDIC insurance and what happens if the bank fails

Your money in a high yield savings account is insured by the FDIC up to $250,000. This means if the bank fails, the federal government will return your money. You do not have to do anything to get this protection — it is automatic.

The $250,000 limit applies per account holder per bank. If you have $200,000 in a high yield savings account at Marcus and $100,000 at Ally, both are fully insured because they are at different banks. If you have $300,000 at Marcus, only $250,000 is insured, and you would lose the extra $50,000 if the bank failed.

Bank failures are rare. The FDIC has been insuring deposits since 1933, and most people never experience a bank failure in their lifetime. The insurance exists to protect you, but it is not something you need to worry about with a well-known bank.

Moving money in and out of your high yield account

You can transfer money into your high yield account from another bank account you own. Log into your high yield account, find the "Transfer" or "Move Money" section, and choose "Transfer In." The bank will ask you for the routing number and account number of the bank you are transferring from. This information is on the bottom left of your checks, or you can call your other bank and ask for it.

Transfers usually take one to three business days. Some banks offer faster transfers for an extra fee, but most people do not need this. If you need the money urgently, you can withdraw it from your other account and deposit it in person at a branch, or use a wire transfer, which costs money but arrives the same day.

To take money out of your high yield account, log in and request a transfer to another account you own. You can also write a check if the bank issued you a checkbook, or use a debit card if the bank sent you one. There are no limits on how many times you can withdraw per month — the account is yours to use whenever you need it.

Frequently Asked Questions

Can I open a high yield savings account if I have bad credit?

Yes. Banks do not check your credit score when you open a savings account. They verify your identity using your Social Security number and may check whether you have unpaid debts or fraud on your record, but a low credit score does not disqualify you. If you have been denied a bank account in the past, call the bank before you open an account and ask what their policy is.

What is the difference between a high yield savings account and a money market account?

A money market account usually pays slightly higher interest than a high yield savings account, but it often requires a larger minimum balance and limits how many times you can withdraw per month. A high yield savings account has no withdrawal limits and usually no minimum balance. For most people, a high yield savings account is simpler and more flexible.

Do I have to keep a minimum balance in a high yield savings account?

Most high yield accounts have no minimum balance requirement. Some banks ask for $1 or $25 to open the account, but after that you can let the balance drop to zero without penalty. Check the bank's fee schedule to confirm — it will say "No minimum balance" or list the minimum amount required.

Can the bank lower my interest rate after I open the account?

Yes. Banks change their interest rates regularly, and they can lower your rate at any time. If your rate drops significantly, you can move your money to a different bank that offers a higher rate. Transfers between banks take a few days, but there is no penalty for moving your money.

How much money should I keep in a high yield savings account?

That depends on your situation. Many people keep three to six months of living expenses in a high yield savings account as an emergency fund. Others use it to save for a specific goal like a car or a vacation. There is no right amount — keep whatever you feel comfortable with, knowing that the money is safe and earning interest.