What Is a High-Yield Savings Account?

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If you’re interested in personal finance, you probably already know how important it can be to have an emergency savings fund. Wouldn’t it be nice if that reserved cash could grow and earn interest, but still be easy to access at any time with no (or limited) withdrawal penalties? You actually may be able to make your money work better for you in that way by opening a high-yield savings account!

How High-Yield Savings Accounts Work

High-yield savings accounts are becoming increasingly popular because they earn interest at a considerably higher rate than standard savings accounts – in some limited cases, as much as 10 times or more the interest on a traditional savings account.

The average annual percentage yield (APY) for traditional savings accounts sits around 0.42%, whereas the average rates for high-yield accounts can be as high as about 5%.

This model generally works because high-yield savings accounts are usually provided by online-only banks that offer a more limited selection of banking products. For example, many online-only banks don’t offer checking accounts at all, and without the overhead costs of brick-and-mortar locations, these institutions are often able to offer higher yields to customers.

Other features of a high-yield savings account are similar to those of a standard savings account. The biggest difference is that your money may be able to make more money!

Grow Your Savings

High-yield savings accounts can be ideal for potentially earning a little extra cash with your nest egg.

If you place $10,000 in a standard savings account at a brick-and-mortar bank with a 0.42% interest rate, it could grow $42 in a year.

If you place that same $10,000 in an online, high-yield savings account with a rate of 4.85%, it could grow $485 in a year. And depending on when your account compounds interest, it may earn even more.

Unlike investment accounts, you don’t run as great of a risk of losing value if rates decrease, and you can typically pull money out anytime you need it.

What If I’m Retired?

People who are at or approaching retirement age sometimes make the mistake of thinking high-yield savings accounts are better suited for younger people with more time to watch their money grow. But high-yield accounts can be excellent short-term growth tools for people of every age!

Most retirees utilize savings accounts as a way to try to protect their accessible emergency funds from the risk of losing value, even after they’re able to start making penalty-free withdrawals from their long-term retirement accounts.

High-yield savings accounts are often just as effective as standard savings accounts for storing your easy-to-access cash reserves, except your savings will likely start earning more money in a high-yield account immediately upon deposit instead of just sitting there.

How Can I Access My Money?

One obstacle that makes people hesitate to open high-yield savings accounts is the concept of a fully online account at a separate institution from their checking account. This separation, paired with the absence of a brick-and-mortar location, leaves many wondering “can I access my money easily when I need it?”

The answer is generally yes. The most common method of accessing your money is to transfer funds from your high-yield savings account to your checking account at a different bank via electronic transfer or mobile check deposit, which typically takes 24-48 hours. A few high-yield savings accounts also offer ATM cards for instant withdrawals.

Alternatively, you could fully commit to the online switch and use a bank like Ally that offers both checking and high-yield savings online, so you can make instant transfers within the same banking platform.

However you choose to access your money, just keep in mind that there is a federal withdrawal limit for online savings accounts. High-yield savings account holders can only withdraw or transfer money out of their account six times per month without incurring penalties or restrictions.

How to Open an Account

If you decide that opening a high-yield savings account is a smart way to put some of your reserved cash to work earning a bit more money around the clock, then it’s time to find a bank that fits your needs.

Try answering these questions as you compare different accounts:

What is the annual percentage yield (APY)? This interest rate can fluctuate, so it may be best to consider the APY over the past few years.
What is the minimum deposit required?
Are there any annual fees?
Do they offer any additional special features I might use (new member bonuses, mileage accounts, savings boosters, and so on)?
How will I need to transfer/withdraw my money?

Opening an account is fairly standard for most online banks if you choose to do so. You’ll typically apply online and go through an approval process, which may include running a soft credit inquiry to help verify your identity. To finish setting up your account, you will typically need to create a username and password, fund your new account and select your beneficiaries. Most online banks will also have a mobile app that you can download and use to manage your account from your phone.

In terms of security, legitimate online banks are generally Member FDIC-insured just as traditional banks are, and each customer is then protected by up to $250,000 per account. You can confirm that a website belongs to an FDIC-insured bank by referencing the FDIC’s online database, BankFind.

Investing in You

Brookdale is committed to providing you with helpful information as you navigate finances to retirement and beyond. A high-yield savings account can be another useful tool to help you save for senior living. For more smart money moves anywhere you are, check out some of these relatable personal finance podcasts.

^{The above content is shared for educational and informational purposes only. The content is not intended to be a substitute for professional legal or financial advice or counseling from an attorney or financial advisor and should not be relied upon for making legal, financial or other decisions. Never disregard professional legal or financial advice or delay in seeking it because of something you have read on our site. Please consult your attorney or financial advisor before acting on any content on this website. Reference to any products, services, third parties or links to third-party websites does not constitute an endorsement, sponsorship, or recommendation of such products, services, or third parties by Brookdale or its affiliates.}