What Is a High-Yield Savings Account?

A high-yield savings account is a type of bank account that offers a significantly higher annual percentage yield (APY). The national average for regular savings accounts is 0.42%, according to the Federal Deposit Insurance Corporation (FDIC) as of mid-2023. These high-yield accounts allow your money to earn a much higher return, subject to taxation.

High-yield savings accounts are often FDIC-insured, providing extra security for your savings. They offer easy liquidity and storage for emergency funds, especially during periods of low-interest rates. You should be aware of certain limitations, such as monthly transaction caps and possible fees associated with these accounts.

High-yield savings accounts are one of many avenues for growing your money. Depending on your financial goals, risk tolerance, and timeline, other savings or investment options might be more suitable.

High-yield savings accounts, while offering attractive interest rates and safety for your savings, come with their own considerations. You should be aware of the benefits and limitations of these accounts, so you can make an informed decision.

Understanding high-yield versus traditional savings requires a closer look at their annual yields. The following table provides a direct comparison, showing how a high-yield savings account can significantly impact your savings growth.

According to the FDIC's official website, the insurance limit is $250,000 per depositor, per insured bank, for each account ownership category. This means that if a bank fails, the FDIC will cover up to $250,000 of a depositor's funds in their account.

Recent reports in the news and from certain banks offering high-yield savings accounts suggest that the FDIC's coverage limit may have been raised to $2 million per depositor. This likely stems from the March 2023 banking crisis involving Silicon Valley Bank (SVB) and other regional banks.

The increase in coverage has not been confirmed by an official FDIC statement as of July 2023. Before depositing a significant amount of money into a high-yield savings account, you should contact your bank or a financial advisor for the most current information on FDIC insurance limits.

High-yield savings accounts offer flexibility with better returns whether you’re building an emergency fund, saving for short-term goals, or temporarily holding investment funds.

Opening a high-yield savings account can be a straightforward process. Follow these general steps towards earning higher interest on your savings:

High-yield savings accounts offer significant advantages to various savers. Whether you're new to saving, building an emergency fund, or setting money aside for short-term goals, the benefits are compelling.

New investors: For those just starting to save or invest, a high-yield savings account provides a low-risk option to start growing wealth.

Emergency fund builders: People setting aside money for an emergency fund would benefit, as the account's liquidity allows quick access while accruing interest at a high rate compared to a traditional savings account.

Short-term goal savers: Those saving for short-term goals, like a vacation, a phone or laptop upgrade, or a down payment for a house, would benefit from the higher return without risking their funds on volatile investments.

While high-yield savings accounts offer attractive benefits, there are other options. Money market accounts, CDs, T-bills, or even the stock market may be suitable alternatives depending on your goals and risk appetite.