The Basics of High Yield Savings Accounts

July 3, 2023

High-yield savings accounts are a flexible and easy way to earn interest while saving money. They are perfect for short-term savings projects like creating a rainy-day fund, but work just as well for folks who simply want to put their saved cash in a safe and trusted interest-bearing account with the knowledge that they can pretty much access it whenever they need it. Further, savings accounts from online banks can offer higher interest rates than many traditional checking and savings accounts. 


However, not all high-yield savings accounts are created equal. Here’s an explanation of these savings tools, with questions to ask before you pick one to match your needs. 


What Is A High Yield Savings Account?

A high-yield savings account is a type of savings account that offers a variable interest rate that’s usually higher than rates available from a traditional savings account. But like traditional savings accounts, high-yield savings accounts give you the ability to make deposits and withdrawals. 


So what sort of interest are we talking about? As of May 2023, the best interest rates for high-yield savings accounts are available in the range of 4.00 percent annual percentage yield (APY) or higher.1That’s at least 10 times higher than the national average for savings accounts, which stood at 0.40 percent as of May 2023.2 


APY is used to determine the amount of interest you can earn for a savings account over one year. Unlike annual percentage rate (APR), which reflects the simple interest rate over one year, APY includes the effect of compounding. So, with APR, or simple interest, you would only earn interest on the money that you invested in an account each month. But with APY and compounding, you get a two-for-one: interest on both the money you put into the account and the interest that was previously earned on that money. Interest is generally compounded on a daily, monthly, or quarterly basis, depending on the terms of the account. Compared to APR, APY provides a more accurate representation of how much interest your account will earn in a given year. 


How Do Online Savings Accounts Work?

To use an online high-yield savings account, you first must apply to open an account with the bank of your choice—ideally one that meets your personal needs. To open an account, you’ll need to fill out an online application and provide required personal information, such as your name, address, and Social Security number. Once approved and the account is opened, you can begin to fund it.   


One way to put funds in or transfer funds out of your online savings account is to link the account to another of your checking or savings accounts and transfer funds electronically. Most banks use a test process to confirm that the link between your other account and the new savings accounts is working and secure, often transferring a small deposit back and forth. Some online banks also accept personal checks that are sent by mail.   


In addition, you can set up an automatic connection to regularly deposit a set portion of your paycheck—or transfer a specific amount from your checking account—electronically into the savings account.   


Once you have funds in your account, interest will be compounded according to your bank’s compounding schedule. Earned interest will then be deposited into your account, typically on a monthly basis. You can continue to deposit funds into your account, or withdraw funds, if and when you’d like—but note that some banks limit the number of withdrawals you can make in a month. Since savings accounts are not meant for everyday spending, you likely won’t receive a debit card or checkbook for your account, but specifics depend on the bank. 


Interest-Rate Hikes Mean Better Rates—And Vice Versa

Interest rate increases mean it costs more to borrow, but the rate increases also act as incentive for banks to increase the interest they pay out on savings accounts and CDs.   


Conversely, interest rates may also decrease quickly as well. While low rates make it more affordable to borrow money, the APYs on interest bearing accounts, like HYSAs may drop also. 


Watch Out for Hidden Fees

One thing to watch for from both online and traditional banks is unexpected fees and restrictions. Check to make sure there are no minimum balance requirements, fees to open accounts, no maintenance fees, wire fees to get money in and out of the account, or fees for paper statements. 


FDIC-Insured Savings Accounts

A key point about high-yield savings accounts from banks (along with checking accounts, CDs and money market accounts) is that they are insured by the Federal Deposit Insurance Corp. (FDIC), which covers up to $250,000 per depositor, per account category, per insured bank. Stocks, bonds, mutual funds, annuities, and securities are not protected by FDIC insurance. 


Savings Account Security Checklist

A lot of the appeal of savings accounts is that they are a safe and flexible way to park your cash. But safety also involves security, especially with ever-increasingly online attacks on financial institutions. That’s why you want to make sure your savings account provider has protections surrounding your money. Here’s a security check list to use when comparing savings account offerings from different banks and financial institutions:

  • Does the provider use multi-factor authentication, through one-time codes when you access your account from an unrecognized device, to prevent unauthorized access? 
  • Does the provider block unauthorized access by using numerous secure firewalls? 
  • Does the provider use Secure Socket Layer (SSL) encryption to create a secure connection with your browser when you login in or fill out an application online? This helps protect your personal information. 
  • Does the provider automatically log you out of your account after a period of inactivity to prevent others from seeing or accessing your online accounts? 
  • Does the provider guarantee it will not share your user names and passwords with anyone at any time?  

The Bottom Line


High-yield savings accounts are a proven, safe, and flexible way to help you save for short-term needs, or to just set aside your cash in an account that gets good earnings and where you know you can pretty much have access to it whenever you want. These accounts from online banks tend to offer higher interest rates than brick and mortar banks. But high-yield savings accounts are not all created equal, so asking key questions about minimum fees, charges, and security can help you get the best deal.  





Accounts offered by American

Express National Bank. Member FDIC. Each depositor is insured to at least $250,000 per depositor, per insured bank, per ownership category.

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* The Annual Percentage Yield (APY) as advertised is accurate as of . Interest rate and APY are subject to change at any time without notice before and after a High Yield Savings Account is opened. 


** The national rate referenced is from the FDIC's published Monthly Rate Cap Information for Savings deposit products. Visit the FDIC website for details.


1 There is no minimum balance required to open your Account, to avoid being charged a fee, or obtain the Annual Percentage Yield (APY) disclosed to you.


For a CD account, rates are subject to change at any time without notice before the account is funded. The rate received will either be (i) the rate reflected during your application process or (ii) the rate being offered when your CD is funded, whichever is higher. All CDs must be funded within 60 calendar days from the time we approve your application or will be subject to closure. The interest rate and Annual Percentage Yield (APY) will be disclosed in your account-opening documents, which you will receive after completing your account-opening deposit. After a CD is opened, additional deposits to the account are not permitted. Early CD withdrawals may be subject to significant penalties which could cause you to lose some of your principal. Please see the Deposit Account Agreement for additional terms and conditions and Truth-in-Savings disclosures.


3 For purposes of transferring funds, business days are Monday through Friday, excluding holidays. Transfers can be initiated 24/7 via the website or phone, but any transfers initiated after 7:00 PM Eastern Time or on non-business days will begin processing on the next business day. Funds deposited into your account may be subject to holds. See the Funds Availability section of your Deposit Account Agreement for more information.


4 Calculations are estimates of expected interest earned. Actual results may vary, based on various factors such as leap years, timing of deposits, rounding, and variation in interest rates. The first recurring deposit is assumed to begin in the second period after any initial deposit.


5 IRA Contributions are subject to aggregate annual limits across all IRA plans held at American Express or other institutions. IRA distributions may be taxed and subject to penalties based on IRS guidelines. Required minimum distribution, if applicable, is only relevant to this IRA plan and does not take into consideration other IRA plans held at American Express or other institutions. Please see for more information. We recommend you consult with a financial or tax advisor when making contributions to and distributions from an IRA plan account.