A high-interest savings account can be an ideal savings tool for achieving your savings goals, like building an emergency fund. This is because high-interest savings accounts generally earn more interest than a traditional savings account, while typically providing more liquidity than other long-term investment options like CDs. But with the rise of online banking, there are many types available, and not all are the same. Here’s a look at how to choose the best high-interest savings account for your savings needs.
What Are High-Interest Savings Accounts?
A high-interest savings account – also known as a high yield savings account (HYSA) – is a savings account that offers a higher APY than traditional savings accounts or checking accounts. This means that savers can generally earn higher returns than with lower APY accounts, enabling savers to reach their financial goals – such as building an emergency fund, saving up for a home renovation or car down payment, or planning a vacation – more quickly. High-interest savings accounts are usually opened and accessed online, but brick-and-mortar financial institutions may offer these types of accounts as well.
As of July 2021, high-interest savings accounts averaged around 0.40% APY1, which is considerably higher than the FDIC’s published national average rate for savings accounts of 0.06% APY for the same month.2
High-interest savings accounts are also highly liquid, meaning money can be easily accessed. Although CDs or retirement accounts can offer returns that are competitive with high APY savings accounts, CDs generally require savers to commit funds for anywhere from six months to five years, and retirement accounts often cannot be accessed penalty-free before the age of 59½.
What Is the Best High-Interest Savings Account?
Although the best high-interest savings account depends on your savings needs, the following factors of a great HYSA are worth considering:
Higher than average APYs. Online banks tend to offer higher APYs than their brick-and-mortar counterparts because they do not have to pay to run and staff physical retail locations, so can pass the savings to customers in the form of higher APYs. However, the APYs that banks pay can fluctuate over time and generally reflect broader market conditions. For example, historically speaking, Federal Reserve interest rate cuts frequently correlate with banks deciding to lower the interest rates that they pay to customers. Although APY is only one part of the story of what makes for a good high-interest savings account, the best HYSAs do tend to have historically paid APYs higher than the average for traditional savings accounts.
FDIC insurance. The best high-interest savings accounts have FDIC insurance that protects depositors up to at least $250,000 per depositor, making them a safe place to store cash while earning interest.3 This means that if the bank ever fails for some reason, the FDIC will step in and ensure that each depositor will be reimbursed for at least up to $250,000 of the savings held in that account. For example, a joint account owned by two individuals can receive up to $500,000 total coverage, since the FDIC maximum is per depositor/account owner. As we continue to see alternative bank-like digital deposit products and deposit-like arrangements enter the market from non-bank participants, it is important to know whether your money is being held in an FDIC-insured account.
No or low minimum deposit requirements. Minimum deposit amounts vary from bank to bank, with some requiring no minimum deposit and others requiring a deposit of up to $500 or more to open the account. When deciding on the best high-interest savings account for your needs, consider your budget and decide how much you can initially deposit.
No or low minimum balance requirements. Some high-interest savings accounts require account holders maintain a minimum daily balance that can range anywhere from $5 to $100 or more. If the balance is not met, the customer may be charged a maintenance fee or similar fee. Others require customers to maintain a certain balance to earn interest. Still, other HYSAs require a $0 minimum balance. When deciding on the best high-interest savings account for your needs, consider whether it would be desirable to have to maintain a minimum balance, or whether it would be better for your situation to be free to save and spend at your own pace without worrying about maintaining minimums or triggering fees.
No or low fees. Most high-interest savings accounts don’t charge monthly service fees, maintenance fees, or other fees. But that’s not guaranteed. When choosing a high-interest savings account, it’s important to closely look at account details to check for fees and whether they’re worth it.
Accessibility. Consider how easy it is to access your account and deposit, withdraw, or transfer funds. For example, the best HYSAs generally offer 24/7 account access through online and mobile banking, auto-deposit capabilities, and 24/7 customer support – all of which make it easy to save no matter your daily schedule. Another factor to consider is location. Some high-interest savings accounts might offer higher than average interest rates, but they might only be available for customers living in certain states. And if you prefer to do your banking face-to-face, it may make sense to choose a high-interest savings account with a physical location.
Additional financial product offerings. Many financial institutions offer more than high-interest savings accounts. They may offer CDs, credit cards, investment accounts, loans, and more. Consolidating financial products into fewer institutions can make banking more efficient. For example, you may be able to log into your account to make a deposit into your HYSA and check your credit card balance all in one place.
Remember: it’s not always possible to find a high-interest savings account that has all of the features you want. When looking for the best HYSA to fit your needs, be sure to consider what features matter most to you. For example, some people may be willing to accept a higher minimum balance requirement in exchange for a higher interest rate, as long as they’re confident they can always meet the minimum balance requirement.