What is a High-Yield Savings Account?

What Are High Yield Cash Accounts

A high-yield savings account is a type of savings account that pays out a higher interest yield on your cash. Compared to traditional bank savings accounts, which have a national average annual percentage yield (APY) of 0.33 percent, high-yield savings accounts often offer an APY of 20 times that.

Table of Contents

  1. What is a high-yield savings account and how can you open one?
  2. Benefits of a high-yield savings account
  3. Disadvantages of a high-yield savings account
  4. Alternatives to high-yield savings accounts
  5. What to look for in a high-yield savings account
  6. The bottom line

Key Takeaways

  • A high-yield savings account is an account that pays the account holder a higher-than-average interest rate compared to traditional savings accounts.

  • High-yield savings accounts offer liquidity, higher-than-average interest rate, and FDIC-insured protection.

  • On the down side, there’s a limit to the interest you can earn and interest yields are variable.

  • Popular alternatives to high-yield savings accounts include Treasury bills, automated dividend reinvestment, high-yield money markets, and certificate of deposit (CD) investments.

Earn a higher yield than a high-yield savings account

Get a 5.3%* yield when you move your cash into a Treasury Account on Public.

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What is a high-yield savings account and how can you open one?

A high-yield savings account is an account that pays the account holder a higher-than-average interest rate. If the average savings account in the U.S. offers an interest rate of 0.2% APY, for example, then a high-yield savings account might offer a 4% APY or higher.

Savings is an cornerstone of personal finance. Most experts recommend that everyone have an emergency fund that can cover their bare-bones expenses for at least three months. Putting some of your extra money into high-yield savings is one way to build an emergency fund.

You can open a high-yield savings account with any in-person or online bank or credit union. Expect to provide:

  • Identification (including name, address, and date of birth)
  • Social security number
  • An initial deposit to get the account started

Once you open and fund the account, the money you put in it will earn interest over time (this is money the bank pays you, the account holder). The bank or credit union will pay you this interest on a regular basis, usually monthly, quarterly, or semiannually.

You can deposit money into a high-yield savings account any time you want. Because the asset is liquid, or easily converted into cash, you can also make withdrawals from the account—though you may be limited as to how many times you can take your money out in a given month.

Did you know?

  • High-yield savings accounts aren’t the only way to earn yield on your cash. Through Public.com, U.S. Treasury bills currently offer a 5.3% interest rate, are backed by the U.S. government, and—in many cases—are better suited for short-term. HYSA’s are not investment vehicles

We’ll dig into Public.com’s Treasury bills offering below, but to summarize, this asset boasts:

  • Tax advantaged: No state or local income tax

  • A high contribution limit

  • Maturity dates as quick as 4 weeks or up to 52 weeks

  • Interest rates of 5.3% to help you reach your financial goals

  • Safety element – Backed by the US government

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Benefits of a high-yield savings account

Liquidity

Cash kept in a savings account of any kind is highly liquid, which means you can easily withdraw it without having to worry about any lost value.

Higher-than-average interest yield

If you’re going to park your money, it should work for you while it sits there. This means having your money earn on itself. The best high-yield savings accounts typically offer a generous interest rate.

Federal Deposit Insurance Corporation (FDIC) insurance

As long as you’ve chosen an accredited institution, your account will receive the same FDIC-insured status as other bank accounts.

Disadvantages of a high-yield savings account

Variable interest rates

The banking product’s APY is variable—so what you sign on for may not be what you get.

Fees and minimum balances

Many accounts charge extra fees that can eat into your earnings or require you to maintain minimum balances.

Alternatives to high-yield savings accounts

Here are a few cash alternatives to consider:

  • Treasury bills

Public.com now offers the option to invest in Treasury bills for as little as $100, earning 5.3% interest on your money. Treasury bill income is also partially tax-exempt.

  • High-yield money market

Money market accounts are highly liquid.

  • Certificate of deposit (CD)

CDs offer a fixed interest rate with predictable returns. In some cases, this return can compete with high-yield savings accounts.

Get more yield on your cash

Earn a higher yield than a high yield savings account with a Treasury Account on Public.

Sign up now


What to look for in a high-yield savings account

Interest rate

A savings account’s annual percentage yield (APY) is the interest it pays you on your money. APY shows you how much interest you can expect to earn over the course of a year . For example, if you deposited $10,000 into a savings account with an APY of 2%, you can expect to earn roughly $200 in interest in one year’s time assuming no additional deposits were made. If you were to withdraw all of your money after the first six months, you’d get approximately $100 in interest. You can use APY to compare the best rates.

Compounding method

Closely related to APY is the financial institution’s compounding method for its savings accounts. High-APY savings accounts compound interest monthly, quarterly, semi-annually, or annually (the more frequent the account compounds, the faster your money grows).

Required initial deposit

Most banks and credit unions will have a minimum deposit amount to open a high yield savings account. Some institutions will let you open an account with $0 down with the expectation that you’ll fund the account within 30 days, but most will usually ask that you make an initial deposit of at least $25–$100 to open the account.

Minimum and maximum balance

Some accounts have a minimum and/or maximum balance requirement.

To entice you to keep your high-yield savings account as full of cash as possible, banks and credit unions often waive account maintenance fees and offer their most competitive APY as long as your balance stays above the account’s minimum balance requirement. If your account balance dips below that amount in a given month, you may be required to pay a maintenance fee on your account and earn a lower APY on your money until your balance rises above the minimum balance.

Meanwhile, many banks have an upper limit for how much money you can earn interest on (such as $1 million). For comparison, T-bills don’t have that.

Get more yield on your cash

Earn a higher yield than a high yield savings account with a Treasury Account on Public.

Sign up now


Account fees

High-interest savings accounts may come with monthly maintenance fees, penalties for exceeding the monthly withdrawal limit, transaction fees for moving money around, and other monthly fees or ad-hoc fees. Fortunately, there are options that run without fees

Accessing your money (withdrawals)

When it comes to the number of withdrawals you can make in a given month, some high-yield online savings accounts offer more flexibility than others. This is incredibly important if you need quick access to your money in the event of a financial emergency.

Deposit options

What ways can you deposit funds into your account? Are there fees associated with any method and how long does each option take? Many accounts offer direct deposit, wire transfer, and more. Make sure to check for this before committing to a banking institution.

Safety

How does the bank protect your money? Is it insured by a regulatory body? This is crucial to know before choosing an account. Additionally, you’ll want to make sure you’re making a safe investment with high returns in 2023.

The bottom line

One option to stash your long-term savings is a high-yield savings account, which you can open at many banks. As of March 2023, the average high-yield savings yield is around 4%APY. However, due to interest rate hikes by the Federal Reserve in 2023, T-bills are returning a higher yield. As of 2/16/24, T-bills with a six-month maturity period are earning 5.3%. In addition to the higher interest, T-bills are backed by the full faith of the U.S. government.

Earn a higher yield than a high-yield savings account

Get a 5.3% yield when you move your cash into a Treasury Account on Public.

Sign up

FAQs

How does a high-yield savings account work?

High-yield savings accounts pay interest on the cash you keep in your account on a regular basis. The interest rate fluctuates but tends to be much higher than the average APY for U.S. savings accounts.

Can I withdraw all my money from a high-yield savings account?

Yes, you can withdraw all or part of your money from a high-yield savings account.

Can you lose money in a high-yield savings account?

You can lose money in a high-yield savings account if the financial institution charges fees. Additionally, your cash can lose value if the APY is below the inflation rate. For comparison, there is also the potential for losses in T-bills in the event of inflation.

Are high-yield savings accounts safe?

Yes, high-yield savings accounts from accredited financial institutions that are FDIC-insured are safe.

How often do high yield savings accounts pay interest?

High-yield savings accounts typically pay interest monthly, quarterly, semi-annually, or annually.

​​Do you pay taxes on high-yield savings accounts?

You pay taxes on interest earnings over $10 on high-yield savings accounts at the same rate as your earned income. You report the interest through IRS form 1099-INT.

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