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Discover the Power of High-Yield Savings Accounts
A high-yield savings account could help your money grow faster.
In our recent Mind-Money Connection study, 53% of respondents said they think about their finances daily. For many of those individuals, the tendency to monitor their money comes from concerns over having enough money saved up for retirement or other life goals.
When it comes to saving money, opening a dedicated savings account could be a great place to start. But there are several saving account options out there and the one you choose could impact the way your money grows.
High-yield savings accounts (HYSAs) have higher rates than traditional savings accounts and may help your money grow faster. Wondering if an HYSA is the right fit for your goals? Here’s what you need to know.
Key Takeaways
High-yield savings accounts earn higher rates than traditional savings accounts.
HYSAs are often available through digital and online banks.
HYSAs may be a great addition to your overall savings strategy and could be used in conjunction with other deposit accounts.
What Is a High-Yield Savings Account?
High-yield savings accounts may earn higher rates of return, expressed as an Annual Percentage Yield (APY), than traditional savings accounts. These accounts typically have variable APYs that fluctuate with the market rate set by the Federal Reserve and are usually 10 to 12 times higher than rates on traditional savings accounts.1 Higher rates could help your funds grow faster.
Unlike other savings products with high rates, such as certificates of deposit, HYSAs don’t require you to sacrifice liquidity. These accounts typically let you make deposits and withdrawals when you want, often online or from your smartphone.
Are High-Yield Savings Accounts Safe?
If your HYSA is at a chartered bank, your money is likely covered by FDIC insurance, which insures deposit accounts up to $250,000 per account ownership type, per owner, per institution. If the account is held at an accredited credit union, deposit accounts are covered by NCUA insurance rather than FDIC insurance.
However, some companies that offer these accounts aren’t actually banks. Instead, they are a type of financial technology company known as a neobank. These companies offer financial services but don’t hold a bank charter, meaning your money may not be insured if the company fails.
How Do High-Yield Savings Accounts Work?
As we mentioned earlier, high-yield savings accounts typically offer higher rates than traditional savings accounts. Once you make your initial deposit, the money in your account earns interest based on the account’s APY, and over time, the interest compounds. Compounding means that as your interest is added to the balance, you earn interest on the interest too.
The rate that your interest compounds is based on the schedule that your bank follows, which they provide when you open the account. Keep in mind that the more often an account compounds, the faster your savings could grow.
Since compound interest allows your savings to grow on autopilot, these accounts may be especially helpful when you’re trying to build an emergency fund or want to save for a large purchase like a home, your dream vacation, or a new car.
High-Yield Savings Accounts vs Traditional Savings Accounts
Both high-yield savings accounts and traditional saving accounts help you set money aside. The primary differences between the two are their rates and where they’re available.
Traditional savings accounts are available at most traditional banks and often earn a small amount of interest. As of March 18, 2024, the average APY on savings accounts was 0.47% APY, less than half of one percent.2 With rates this low, you likely won’t notice growth unless you’re making significant contributions.
High-yield savings accounts are most often available through online and digital banks and earn higher rates of return, often near 5.00% APY.3 Some HYSAs may come with a more restrictions than traditional savings accounts, such as high minimum balance requirements or restrictions on the number of withdrawals you may make each month.
Here at Jenius Bank, we want to make saving easy for customers, so our savings accounts don’t have a minimum balance requirement or withdrawal limits. Our accounts are also FDIC insured up to the maximum allowed by law.4
High-Yield Savings Accounts vs CDs
Both HYSAs and certificates of deposit (CDs) let you grow your savings at higher rates than most traditional savings accounts. However, CDs place additional restrictions on your funds.
When you open a CD, you’re typically required to leave your money in the account for a set term, which may range from a few months to five years or more. The CD may also include a penalty if you withdraw the funds before the term’s end.
HYSAs, on the other hand, are considered more liquid than CDs because you’re able to withdraw money when you need to, subject to any limits in place by your financial institution. Additionally, you don’t have to leave your money in the account for a set length of time.
However, HYSAs tend to have variable saving rates that may change with the market. That means when rates increase, your HYSA may earn more interest, and when rates decrease, your money may not grow as fast. CDs typically have fixed rates, and this may give you more predictable returns over the CD’s term – which is helpful if you’re looking for more certainty in your savings growth.
Final Thoughts
High-yield savings accounts are a great way to help you build your wealth and maximize your savings. These accounts earn higher APYs than traditional accounts and may help you put your money to work.
Curious about other savings products? Check out our deposit account guide to learn about the different types of savings accounts available and which one may fit your financial goals.
Ready to supercharge your savings? Open a Jenius Savings account today.