If you’re in the market for a savings account that gives you some of the highest interest rates, you might want to consider a high yield savings account.
This account type can give you some of the best interest rates for a savings account with low to no fees, no minimum required to open, and 24/7 online support.
But, as with anything, there are downsides to weigh against the pros. Let’s unpack this and find out if it’s a good option for you!
What is a High Yield Savings Account?
A high yield savings account is similar to a savings account, except it pays a higher interest rate.
A high yield savings account will pay about 20-25 higher interest rates compared to a traditional savings account.
High yield savings accounts are typically with online banks, which tend to have lower expenses since they don’t have to pay bills associated with a physical location.
Because of their lower expenses, they can give higher interest rates.
Pros of High Yield Savings Accounts
They offer higher than usual interest rates.
The most obvious positive about a high yield savings account is that they have some of the highest interest rates for this type of account.
So not only will your money be safe in this account, but it will grow slightly more than in a traditional savings account.
They don’t have a minimum requirement.
Most high yield savings accounts don’t have a minimum requirement to open an account or monthly maintenance fees. This allows for a lower barrier of entry for people who are just starting to save money.
Cons of High Yield Savings Accounts
Interest rates can fluctuate – often.
One of the biggest drawbacks of a high yield savings account is that the interest rate paid on your savings can fluctuate often.
For example, some banks have gone from 2.2% interest to 0.5% very quickly. Of course, this all reflects on the current rates set, but there can be a high fluctuation of interest rates.
Banking can be more challenging.
Since most high yield savings accounts are mostly through online banks, it can make banking more challenging if you need liquid cash quickly.
You will need to either use an ATM (where fees would be waived) or transfer from your high yield account to your checking account, then go to your physical bank to withdraw your cash.
If you don’t want to wait for that transfer, you can go to an ATM, but sometimes it can be challenging to find which ATM is in your approved list of waived fee options.
You may need to have accounts from multiple banks.
Lastly, if you want to have all of your banking needs in one spot, you may not be able to have a high yield savings account with a bank you are currently using.
Likewise, if you want to only work with one bank, you may not be able to have a high yield savings account, or you will have to have two banks.
Picking a High Yield Savings Account
When you’re looking to open a high yield savings account, there are a few things to consider when choosing the right bank for you.
1. Always consider:
- fees
- initial deposit
- interest rates
- withdrawal limits
- app/website usability
2. Find an account that has no initial deposit requirements or a low initial deposit requirement.
This will ensure that you can open this account with any amount that you have, even if it’s just $1.
3. Look into any fees this account may have just for saving money with this bank.
Most high yield savings accounts will have no fees, but make sure to confirm that. If there are fees, ask how these can be waived. You may be able to do so if you have a certain amount in this account or if you’re a student.
4. Ensure you’re getting the highest interest rate possible.
This will ensure that you can get the most out of this type of account. You may have to go online and find each bank’s interest rates to compare.
5. Do your research on withdrawal limits as well.
This can really impact how you use this account.
Like a traditional savings account, a high yield savings account will have a withdrawal limit. Most are six withdrawals a month, and if you go over, there will be a penalty.
If you anticipate you’ll need more withdrawal limits, find a bank that offers that. Ideally, you should be planning your withdrawals to make sure you are within their limits.
You’ll also want to ensure their mobile website and app perform how you want them to, since most high yield savings accounts are with online-only banks.
If you cannot physically go into this bank, you want to know that all of your banking needs are met with the app and website.
Always make sure the bank you use is FDIC insured because this will protect your money.
Wrap Up
When it comes to saving money, there are a lot of things to consider.
Choosing the right type of savings account and bank are important decisions to make to help you reach your financial goals.
If you want to keep your money in a safe, accessible place with a higher interest rate, then a high yield savings account could be the right option for you.
Editor’s note: This article was originally published Aug 24, 2022 and has been updated to improve reader experience.
Photo by @noelle-design on Canva
