A high-yield savings account pays you more interest than a regular savings account at a brick-and-mortar bank
A high-yield savings account (HYSA) is a savings account where the bank pays you a higher percentage of interest on the money you keep there. Right now, many online banks offer rates between 4% and 5% annually, while traditional banks often pay less than 0.5%. The difference matters: on $10,000, a traditional bank might pay you $50 per year, while a high-yield account could pay you $400 to $500 per year.
The reason online banks pay more is straightforward — they have lower costs. They don't maintain physical branches, so they pass some of that savings to you through higher interest rates. Your money is just as safe in an online HYSA as in a traditional bank because deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account.
Most HYSAs come with the same basic features as regular savings accounts: you can deposit money, withdraw it when you need it, and set up automatic transfers. The main trade-off is that you typically cannot walk into a branch to deposit cash or speak to someone in person — everything happens online or by mail.
Key Takeaways
- High-yield savings accounts at online banks currently pay 4% to 5% annually, compared to less than 0.5% at most traditional banks.
- Your deposits are FDIC-insured up to $250,000, so your money is protected even if the bank fails.
- Interest rates change over time and vary between banks, so comparing current rates before opening an account matters.
- You can withdraw your money whenever you need it, but some banks limit the number of free withdrawals per month.
- Online banks offer higher rates because they have lower operating costs than banks with physical branches.
How to compare rates between different banks
Interest rates on HYSAs change frequently — sometimes weekly — so the rate you see today may not be the rate you get next month. Before opening an account, check the current rate on the bank's website and look for any fine print about when rates might change.
Some banks offer a promotional rate for new customers that drops after a few months. Others maintain the same rate for all customers. Read the account terms carefully to understand whether the rate you see is permanent or temporary. A bank advertising 5.00% that drops to 2.50% after six months is not the same as a bank offering 4.75% with no time limit.
You should also check whether the bank charges monthly fees, requires a minimum balance to earn the advertised rate, or limits how many times you can withdraw money per month. Some banks charge $5 to $10 monthly if your balance falls below a certain amount. Others have no fees at all.
Which banks currently offer competitive rates
Many online banks and some credit unions offer high-yield savings accounts. Banks like Marcus, Ally, American Express Personal Savings, and Discover all have HYSAs with rates in the 4% to 5% range, though the exact rate changes regularly. Credit unions sometimes offer competitive rates through their savings accounts as well.
The best account for you depends on what matters most to you. If you want to deposit cash, you might choose a bank that has partnerships with ATM networks or allows deposits at partner locations. If you want to move money between accounts quickly, you might prioritize a bank that offers fast transfers. If you straightforward want the highest rate with no complications, you can compare rates on financial websites that update them daily.
No single bank is "best" for everyone — the best HYSA is the one with the highest current rate that meets your needs and has no fees or restrictions that would cost you money.
How much interest you actually earn depends on your balance and how long you keep the money there
Interest on a savings account is calculated based on your balance and the annual percentage yield (APY). If a bank offers 4.50% APY and you keep $5,000 in the account for a full year without adding or withdrawing money, you would earn about $225 in interest.
The interest compounds, which means you earn interest on your interest. Most HYSAs compound daily, so your balance grows a little bit each day. Over a year, daily compounding adds up to slightly more than if interest were calculated once per month.
If you add money to the account during the year, you earn interest on those deposits too, but only for the time they sit in the account. Money you deposit in month six earns interest for only seven months that year, not twelve.
FDIC insurance protects your money up to $250,000
The FDIC is a government agency that insures deposits at banks that are members of the FDIC system. If a bank fails, the FDIC pays depositors back up to $250,000 per account. This means your money in a high-yield savings account is just as protected as money in a traditional bank account.
The $250,000 limit applies per depositor, per bank, per account type. If you have $250,000 in a savings account and $250,000 in a money market account at the same FDIC-insured bank, both are fully protected. If you have $300,000 in one savings account at one bank, only $250,000 is insured and you would lose $50,000 if the bank failed.
Before opening an account, you can check whether a bank is FDIC-insured by searching the FDIC's Bank Find tool on their website. All major online banks that offer HYSAs are FDIC-insured.
Withdrawal limits and how quickly you can access your money
Most HYSAs allow you to withdraw your money whenever you need it, with no penalty. However, some banks limit the number of free withdrawals you can make per month — often to six or ten. If you exceed that limit, the bank may charge a fee per extra withdrawal.
Transfers between your HYSA and another bank account usually take one to three business days. If you need cash when ready, you can withdraw from an ATM if the bank offers ATM access, though not all online banks do. Some online banks partner with ATM networks so you can withdraw at thousands of locations without a fee.
If you are saving money for a specific goal and do not plan to touch it for months or years, withdrawal limits do not matter. If you need to access your money frequently, choose a bank with no withdrawal limits or one that offers ATM access.
When a high-yield savings account makes sense for your money
An HYSA works best for money you want to keep safe and accessible but do not need right away. This includes emergency savings, money for a down payment you are saving for, or funds you are setting aside for a known expense in the next year or two.
An HYSA is not the right place for money you need to access within days, because transfers take time. It is also not ideal for money you plan to invest in stocks or other investments, because a savings account is meant to preserve money, not grow it through investment returns.
If you have money sitting in a traditional bank savings account earning almost no interest, moving it to an HYSA costs nothing and takes about ten minutes. You keep the same access to your money and earn significantly more interest.
Frequently Asked Questions
Can I lose money in a high-yield savings account?
No. Your principal — the money you deposit — is protected by FDIC insurance and cannot decrease. The interest rate can go down, which means you earn less interest in the future, but the money you already have stays the same.
What happens to my interest if the bank lowers its rate?
Interest you have already earned stays in your account. If the bank lowers the rate going forward, you straightforward earn less interest on new deposits and on your existing balance from that point on. You do not lose the interest you already received.
Do I have to keep a minimum balance in a high-yield savings account?
Some banks require a minimum balance to earn the advertised rate, while others do not. Check the account terms before opening. Many online banks have no minimum balance requirement at all.
How do I move money from a traditional bank to a high-yield savings account?
You can set up an external transfer from your traditional bank to the HYSA, which usually takes one to three business days. Alternatively, you can withdraw cash and deposit it by mail if the online bank accepts mail deposits, though this is slower.
Is my money stuck in a high-yield savings account?
No. You can withdraw your money anytime without penalty, though transfers to other banks take a few business days. Some banks limit free withdrawals per month, so check the terms if you think you will need frequent access.