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The Basics of High Yield Savings Accounts

May 16, 2019

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 significantly higher interest rates than most “brick-and-mortar” checking and savings accounts.


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


What Is A High Yield Savings Account?

First, the basics. A high yield savings account offers a variable interest rate that is usually higher than rates available from a typical bank. It gives you the ability to make an unlimited number of deposits and a large degree of flexibility to withdraw the money.


So what sort of interest are we talking about? The better interest rates for high yield savings accounts are available in the range of 1.9 to 2.45 percent annual percentage yield (APY, and more on what that means later). That’s more than 18 times higher than the national average for savings accounts, which currently stands at 0.06 percent. ("Not Saving Enough for a Rainy Day? High Yield Savings Accounts and CDs Can Help”).


Most banks calculate interest on high yield savings accounts using APY, which is the amount of interest people earn for their savings account over one year. APY is different than simple interest in that it is compounded. With simple interest, you would make the same about of interest on the money 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.


How Do Online Savings Accounts Work?

High yield savings accounts from online banks are a great option for higher earnings and lower fees. Since online banks don’t have the same overhead costs as brick-and-mortar banks, many of the highest yield savings accounts can be found at online banks.1 Moreover, in addition to having leaner operations, online banks also are aggressively competing with traditional banks for your business.2


Another advantage of online banks is that they are open 24/7 whenever you need access, not only when the doors of the bank are open.


In order to put funds in or transfer funds out of your online savings account, you will need to link the account to your external checking or savings account and transfer funds electronically. Most banks use a test process to confirm that the link between your personal account and the new savings accounts is working and secure, often transferring a penny back and forth. Some online bank also accept personal checks that are sent by mail.


In addition, if you have trouble saving money or just want to make it more of a habit, 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 in the savings account.


Interest-Rate Hikes Mean Better Rates in Future

The Federal Reserve has hiked the federal funds rate eight times in less than three years, and is expected to continue increases in 2019. While these rate hikes mean it will cost more to borrow, the rate hikes act as incentive for banks to increase the interest they pay out on savings accounts and CDs. But big brick-and-mortar banks tend to respond more slowly to Fed rate increases than online banks.3


“The Fed is going to continue raising rates, so savers should do even better in the course of the next 12 months or so,” notes Greg McBride, senior vice president and chief financial analyst at


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 balances, fees to start up the accounts, 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 (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. Stocks, bonds, mutual funds, annuities, and securities are not protected by FDIC insurance.


Savings Account Security Checklist

A lot of the appeal of savings account is that they are a safe and flexible way to park your cash. But safety also involves security, especially with ever-increasingly sophisticated online attacks on financial institutions. That’s why you want to make sure your savings account provider has world-class 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 and financial institutions 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. Meanwhile, as the Fed continues to raise its benchmark funds rate, banks—especially online ones—will likely be increasing the interest rates on these accounts.

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†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.


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.


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


‡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.


♢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.


§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.