How to choose the best high-yield savings account: 5 things to look for

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There’s no shortage of savings accounts to choose from if you need a place to store your hard-earned extra cash. But a high-yield savings account could be the better option to make your money work even harder for you.

The average savings account interest rate is 0.57% as of 2024. The best high-yield savings accounts come with interest rates as high as 5%, with low — or no — fees. These accounts offer a risk-free way to grow your money while keeping it accessible.

Here’s what you need to know about high-yield savings accounts and how to find the best one that fits your needs.

How high-yield savings accounts work

High-yield savings accounts offer a higher interest rate compared to traditional savings accounts. They're often offered by online banks, which have lower overhead costs and can pass on the savings through higher interest rates.

When you deposit money into a high-yield savings account, the bank pays you interest on your balance. This interest is usually calculated daily and paid out monthly or quarterly. This higher interest rate helps your savings grow faster.

The rate you’ll earn is typically variable, which means it will fluctuate over time. Some banks limit the amount of money eligible for the highest interest rate. Others pay a lower return if your balance falls below a certain threshold.

Many high-yield savings accounts have no minimum balance requirements or fees, making them an excellent option to boost your savings.

Unlike certificates of deposit (CD), which require you to lock your money away for a fixed period of time, high-yield savings accounts allow you to access your funds when needed without any penalty. But keep in mind that there is generally a monthly withdrawal limit, and exceeding it means you’ll incur a fee.

Benefits of high-yield savings accounts

There are several key benefits to opening a high-yield savings account: 

• Higher interest rates: The main advantage of high-yield savings accounts is the higher APY they offer compared to traditional savings accounts. This means your money grows faster without any additional effort on your part. 
• Low fees: Many high-yield savings accounts come with low or no monthly maintenance fees, making them an affordable option for savers. 
• Easy access to funds: Unlike certificates of deposit (CDs), which require you to lock your money away for a set term, high-yield savings accounts allow you to access your funds easily when needed. However, it's important to note that most accounts have a monthly withdrawal limit of six transactions due to federal regulations. 
• FDIC insurance: Most high-yield savings accounts are offered by FDIC-insured banks, meaning your deposits are protected up to $250,000 per account ownership category.

5 things to consider when choosing a high-yield savings account

If you’re in the market for a high-yield savings account, you may be most concerned with the interest rate. That’s fair, considering you want to maximize your returns.

But there may be a few other things to consider.

Here’s a closer look at what to evaluate when scoping out your options.

1. Competitive interest rates

A higher interest rate means your money will grow faster, and you'll reach your savings goals sooner.

Ideally, you want an account that pays a generous APY with few (or no) strings attached. Look for options with no minimum balance requirements and minimal fees to ensure the benefit of an attractive APY doesn’t outweigh the cost of having an account.

“The national average is pretty low, so anything above that is considered high-yield. But keep an eye on those rates. Sometimes, they start high and drop after a few months,” says Jeff Rose, certified financial planner and founder of Good Financial Cents.

2. No minimum balance requirement

Flexibility is key when it comes to managing your savings. It’s not uncommon for banks to put minimum balance requirements on high-yield savings accounts. If you can meet the minimum threshold and want to earn the advertised return, go for it.

If not, look for accounts with no minimums. This ensures you can deposit and withdraw funds without worrying about maintaining a certain balance to avoid fees or penalties.

3. Low (or no) fees

Minimum balance requirement fees aren’t the only costs to look out for. There are also monthly account maintenance fees, transaction fees, excessive withdrawal fees, and statement fees, to name a few.

Fees can eat into your savings and diminish the benefits of having a high-yield account. Look for an account with low or no fees. By avoiding these unnecessary charges, you can keep more of your hard-earned money.

4. Accessibility and convenience

Do you prefer an in-person banking experience? Or do you do most of your banking online? Deciding between a traditional and an online bank will help narrow down your search.

Look for a high-yield savings account with convenient access options like online banking, mobile apps, and an ATM network. These features make it easier to manage your savings from anywhere, at any time.

Also, keep the withdrawal limits in mind.

“Some high-yield savings accounts limit the number of withdrawals you can make each month. So, think about how often you’ll need to access the money,” Rose says.

5. FDIC Insurance

It’s always important to prioritize the safety of your funds. That’s why you’ll want to look for an account that is FDIC insured.

The Federal Deposit Insurance Corporation (FDIC) protects your deposits up to $250,000 per person per account. This ensures that even if the bank fails, your money remains safe and secure.

Making the most of your high-yield savings account

Once you've chosen the best high-yield savings account for your needs, there are several ways to maximize your savings: 

• Set up automatic transfers: Automate your savings by setting up recurring transfers from your checking account to your high-yield savings account. This ensures you're consistently saving and helps you reach your goals faster. 
• Make additional deposits: Whenever you have extra money, such as a tax refund or bonus, consider depositing it into your high-yield savings account to boost your balance and earn more interest. 
• Avoid excessive withdrawals: While high-yield savings accounts offer easy access to your funds, try to minimize withdrawals to keep your savings growing. Remember that most accounts have a monthly withdrawal limit of six transactions. 
• Monitor your account regularly: Keep an eye on your high-yield savings account to track your progress and ensure you're earning the expected interest. If your bank lowers its rates, consider shopping around for a more competitive option.

Frequently asked questions about high-yield savings accounts

Are high-yield savings accounts safe?

Yes, as long as you choose an account offered by an FDIC-insured bank or NCUA-insured credit union. This protection covers your deposits up to $250,000 per person, per account. 

Can I open multiple high-yield savings accounts?

Yes, you can open multiple high-yield savings accounts with different banks or credit unions to take advantage of competitive rates and maximize your savings. 

Are there any tax implications on high-yield savings accounts?

Interest earned on your high-yield savings account is considered taxable income. Your bank will send you a Form 1099-INT at the end of the year, which you'll need to report on your tax return. 

How often do high-yield savings account rates change?

Interest rates on high-yield savings accounts are variable and can change at any time based on market conditions and the bank. Keep an eye on your account's APY and be prepared to shop around if rates drop significantly.

The bottom line

A high-yield savings account is a low-cost, risk-free way to grow your money and help you meet your savings goals faster. Be sure to explore and compare several options before opening an account. Keep interest rates, minimum balance requirements, and fees in mind as you evaluate accounts that pique your interest. Also, confirm they’re accessible, convenient, and backed by the federal government so the funds you’ve worked hard to save are protected.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.