High Yield Savings Accounts – What are They and How do They Work?
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Saving money is important, but not all savings accounts offer the same benefits. For example, a savings account at your local bank will pay minimal interest, resulting in a few dollars a year, but a high yield savings account can help you reach your financial goals faster.
How can HYSAs pay so much? Here’s how they work.
What Is a High Yield Savings Account?
A high yield savings account is a bank account, usually from an online bank, that pays a much higher APY than traditional banks. However, they work the same as regular bank savings accounts, meaning you can’t make more than six withdrawals per cycle, and you don’t get checks with the account.
The difference is how much faster your money grows. Banks offering HYSAs usually operate only online, so they have less overhead. These banks share the savings with clients by paying higher APYs.
You can only access your money in HYSAs online, but it’s much easier than you might think. Even brick-and-mortar banks today are moving to more electronic transactions and doing away with traditional tellers.
What Banks Have the Best High Yield Savings Accounts?
Many banks offer HYSAs, but here are some of the best options.
Marcus by Goldman Sachs
Marcus by Goldman Sachs is an online-only bank offering competitive high yield savings accounts for those who don’t mind banking online. Here are the top benefits of this account:
No minimum balance to earn high APY
No monthly fees
Receive interest on your money while it’s transferring not just when it hits your account
Can access account on website or app
Extended hours customer support
Click here to learn more about Marcus by Goldman Sachs.
Chime
Chime is an online-only bank offering competitive high yield savings accounts for those who don’t mind banking online. Here are the top benefits of this account:
No minimum balance to earn high APY
No monthly fees
Can access account on website or app
24/7 customer service
Discover
You know Discover for its credit cards, but did you know they have a high yield savings account too? Their high yield savings account offers many benefits, including:
No minimum balance required
Easy-to-navigate website or app
Often runs promotions for sign-up bonuses
24/7 customer service
Click here to learn more about Discover’s High Yield Savings Account.
Citizens
Citizens is the online component of Citizens Bank, a brick-and-mortar bank. If you aren’t in an area with a Citizens Bank or want to earn a higher APY, their HYSA is a good option.
Here are the benefits:
Only $1 minimum to open an account
No monthly fees
Customer support is available seven days a week
Click here to learn more about Citizen’s High Yield Saving Account.
What to Look for in a High Yield Savings Account?
Like regular bank accounts, each bank offers different features and has different required terms. Here’s what to consider when looking for an HYSA.
No Minimum Balance Requirement
Many online banks don’t require a minimum deposit or balance. However, some banks offer tiered interest rates, so the advertised rate you see might only be for depositors with large balances.
Read the fine print or ask a representative what the balance requirements are, and remember there are plenty of accounts with no balance requirements. Pay attention to the minimum balance to open an account and the minimum monthly balance required to earn the highest rates.
No Monthly Fees
Most banks charge a monthly maintenance fee but offer ways to waive it. Find HYSAs that either don’t require a fee or make it easy to waive it.
Common ways to waive a monthly maintenance fee include:
Carrying a specific balance
Receiving a certain number of direct deposits each month
High APY
This probably goes without saying, but why invest in an HYSA if they don’t pay a high-interest rate? Today, the average APY is around 3%, but that could change frequently. Compare the rate an online bank offers to your local bank’s rates to determine if you’re making the most of your money.
Read the fine print too. For example, some banks pay lower interest rates for smaller balances and higher rates for those with high (sometimes unachievable balances).
Ability to Make Cash Deposits
If you have cash to deposit often, find an online bank that allows them. Some banks only allow electronic transfers. This means if you have cash to deposit, you must first deposit it in your checking account and then transfer it to your savings account.
While electronic transfers aren’t bad, it’s an extra step that you might overlook and then not save as much money.
FDIC Insurance
Never deposit money in a bank that isn’t FDIC-insured. You should see the logo at the bottom of their website, but you can also ask. If they are insured, your deposits are covered up to $250,000 per depositor should the bank fail.
This makes it much less risky to use an online bank. Even if it’s not one you’re familiar with, you won’t lose your money if they fail. Getting your money back might take some work, but you’ll get it.
How are High Yield Savings Accounts Different than Traditional Savings Accounts?
One major difference between HYSAs and traditional savings accounts is the interest you earn.
Typically, high yield savings accounts are at online banks, so you have to bank electronically, but that’s not always the case. Instead, you might find HYSAs at your local bank, but with higher minimum balance requirements, to earn higher interest rates.
Deciding how you want to bank is the best option. With traditional banks, you can visit them in person, use their ATMs and teller services. Then, if you have questions, you can call the bank or go inside and ask a banker.
If you open an account with an online bank, you must bank electronically. You might still have access to ATMs and even be able to make cash deposits, but most transactions take place on the website or mobile app.
Final Thoughts - What’s the Catch?
You’re probably wondering what’s the catch. How can an online bank pay 3% interest and your local bank pay 0.20% or less?
Online banks have much less overhead, so they can pay depositors higher interest rates. With fewer bills, they can help depositors’ money grow faster with higher interest rates.
However, always read the fine print. For example, some banks have minimum balance requirements or other guidelines that, if you don’t meet, you’ll earn much lower APYs. Know the details to ensure you get the most out of your funds.
