High-Yield Savings Account

If you’ve got some extra money that you’re not planning to spend soon, putting it in a high-yield savings account (HYSA) can be a smart move. These accounts offer a way to grow your savings faster than a typical savings account, with very little risk.

What is a High-Yield Savings Account?

Unlike a checking account, which is used for daily spending and easy access to your money, a savings account is meant for money you won’t need right away but want to keep safe and accessible. Savings accounts often limit how often you can take money out each month, and you might have to pay a fee if you go over that limit.

A high-yield savings account is just a savings account that pays a higher interest rate. While the average savings account might pay 0.44% interest, a high-yield account could offer rates above 4%—much better, especially with inflation at 2.4%. However, these rates can change; for instance, they might decrease if the Federal Reserve decides to cut interest rates, as they did by half a percentage point at their last meeting.

How to Choose the Best High-Yield Savings Account

When looking for the best high-yield savings account, don’t just look for the highest interest rate. Consider these factors:

• Banking Method Preference: Do you like to visit a bank in person, or are you okay doing everything online? If you like in-person banking, a traditional bank might be better, even if it means slightly lower rates.
• Interest Rates (APY): The annual percentage yield (APY) is what you’ll earn in interest over a year. Rates can be over 4% at some online banks and credit unions, which usually offer better rates than traditional banks because they have lower overhead costs.

Example: Let’s say you put $1,000 in an account with an APY of 4%. By the end of the year, you would earn $40 in interest.

• Convenience: Think about how you’ll use the account. If it’s going to be part of your emergency fund, you might want a bank where it’s easy to get your money out quickly.

Account Features to Consider

• Fees: Watch out for monthly fees or minimum balance requirements that could eat into your earnings.
• FDIC Insurance: This protects your money up to $250,000 if the bank fails. It’s crucial to make sure any bank or credit union you use is insured by the FDIC or its credit union equivalent, the NCUA.

Finding the Best Rates

As of November 1, here are some of the top rates from our research:

• Pibank: 5.50% APY (no minimum to open)
• Newtek Bank: 5.25% APY (no minimum to open)
• TIMBR: 5.25% APY ($1,000 minimum deposit)

Remember, while a high APY can be exciting, it’s important to look at the whole picture, including how the bank aligns with your needs and whether you’re comfortable with their banking platform.

Key Financial Terms Defined:

• Checking Account: A bank account that allows for numerous withdrawals and deposits. It’s typically used for day-to-day spending.
• Savings Account: A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Access to funds may be limited by the bank.
• Interest Rate: The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate (APR).
• Annual Percentage Yield (APY): The rate of return earned on a deposit over a year, taking into account the effect of compounding interest.
• FDIC Insurance: A protection provided by the Federal Deposit Insurance Corporation that covers the balance of bank customers up to $250,000 per depositor, per insured bank, for each account ownership category in the event of a bank failure.
• NCUA: The National Credit Union Administration, a federal agency that insures deposits at federal credit unions and regulates federally insured credit unions.