What Is a High-Yield Savings Account?

ByNathan Paulus
Edited byRae Osborn

Updated: September 2, 2023

ByNathan Paulus
Edited byRae Osborn

Updated: September 2, 2023

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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.

  • As of 2023, they offer around 4% APY, surpassing the national average of approximately 0.4% APY for traditional accounts, according to the FDIC.

  • Online banks commonly offer high-yield savings accounts, but many traditional national banks and credit unions provide these accounts as well.

  • Banks offering high-yield savings accounts are insured by the FDIC.

  • Some high-yield savings accounts have drawbacks, such as requiring minimum balances or only allowing a limited number of transactions per month.

  • Interest earned on high-yield savings accounts is subject to taxation.

Sources: FDIC: National Rates and Rate Caps, Experian: Pros and Cons of High-Yield Savings Accounts, IRS: Topic No. 403, Interest Received

Benefits and Drawbacks of High-Yield Savings Accounts

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.

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Earnings from high-yield savings accounts exceeding $10 are taxable as interest income and reported via Form 1099-INT provided by your bank. Your tax rate depends on your overall income and tax bracket; state or local taxes may also apply. Always consult with a tax professional for personalized advice.

APY Comparison: High-Yield Savings vs. Traditional Savings

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.


FDIC Insurance

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.

Best Uses of a High-Yield Savings Account

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.


How to Open a High-Yield Savings Account

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


Do Your Research

Research and compare different financial institutions that offer high-yield savings accounts. Look at the APY, fees, minimum balance requirements, and other terms to find the best fit for your financial goals.


Prepare Your Information

Prepare your personal information, such as your Social Security number, a valid form of identification (like a driver's license or passport), and your contact details.


Open Your Account

Depending on the institution, you can open an account online or visit a physical branch. Fill out the application form with your personal information.


Fund Your Account

After approval, fund your new high-yield savings account by transferring an initial deposit or setting up a direct deposit.

Who Should Consider a High-Yield Savings Account?

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.


Alternatives to High-Yield Savings Accounts

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.


High-Yield Savings Account FAQ

No, your principal deposit is protected in a high-yield savings account as long as it falls within the FDIC insurance limits. Your purchasing power might decrease if the account's interest rate doesn't keep up with inflation.

Yes, high-yield savings accounts at FDIC-insured banks are covered up to $250,000 per depositor, per account ownership category. This means your money is safe even if the bank fails.

Yes, banks can change the annual percentage yield (APY) of their savings accounts, including high-yield savings accounts, at any time. This is because APYs are variable rates that are tied to the federal funds rate.

High-yield savings accounts typically compound and pay interest monthly, but it varies by bank. Some banks may compound daily, semi-annually, or annually.

While there's technically no limit to how much you can deposit in a high-yield savings account, the FDIC only insures up to $250,000 per depositor, per account ownership category. Any amount over this will not be covered by the FDIC.

About Nathan Paulus

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Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.