High-Yield Savings Accounts

Looking for a safe place to keep your money and earn a higher interest rate than a traditional savings account? Or perhaps you’re between investments and want a safe place to keep your money while you plot your next investment move. Or maybe you’re nearing retirement and want to move your money out of higher-risk investments into a safer, more liquid account.

Well, if any of these apply to you, a high-yield savings account may be something you want to consider. 

What is a High-Yield Savings Account?

The name pretty much says it all. A high-yield savings account is a savings account that yields a higher rate of return than a traditional savings account. How much more? According to Forbes, a high-yield savings account may yield an annual percentage yield (APY) anywhere from 10 to 25 times higher than a traditional savings account. 

Is a High-Yield Savings Account Safe?

A high-yield savings account is federally insured, so your money is protected. If you open the account with a bank, the account will be insured by the Federal Deposit Insurance Corporation (FDIC); if the account is opened with a credit union, it is insured by the National Credit Union Share Insurance Fund (NCUSIF).

But be aware that there are protection limits. High-yield savings accounts are insured for up to $250,000 per account owner, per insured bank or credit union.

Does a High-Yield Savings Account Work the Same as a Traditional Savings Account?

A high-yield savings account works the same as a traditional savings account in that you make an initial deposit and earn compound interest on that deposit. However, whereas a traditional savings account may not have a minimum deposit requirement—or it’s typically fairly low, say, $25—a high-yield savings account often has a minimum amount you must deposit to open an account. And the amount could be substantial, ranging anywhere from hundreds of dollars to a hundred thousand dollars.

A high-yield savings account may also require you to maintain a minimum balance to keep the account open, which some standard savings accounts require as well—albeit at much lower amounts.

There may also be fees associated with a high-yield savings account that a traditional savings account may not charge. For example, a high-yield savings account may charge a monthly maintenance fee. Depending on your account, this fee may be avoidable by maintaining at least the minimum required balance on the account.

Can I Write Checks on a High-Yield Savings Account?

Just as you can’t write checks on a traditional savings account, you cannot write them on a high-yield savings account either. If you have a traditional savings account with a bank, you would need to open a checking account in order to write checks. If both accounts were with the same bank, you could easily transfer money from your savings account to your checking account in order to write checks (indirectly) on your savings.

If you want the ability to write checks on a federally insured account that typically pays higher interest rates than a traditional savings account, you may want to consider a money market account. Money market accounts typically come with a checkbook and debit card, but they also limit the number of transactions you can make each month.  

Is a High-Yield Savings Account Worth It?

Whether or not there’s a high-yield savings account in your future really comes down to how much money you have to deposit, how much access you want to your money, and your investment strategy.

If you don’t have enough cash to meet a high-yield savings account’s minimum balance, then it’s not really an option. If you do have the cash, but it will be difficult for you to maintain any required minimum balance, then maintenance fees you pay could eat into the interest you’re earning—and the bank or credit union may have the option to close the account for failure to meet minimum balance requirements.

You also may be able to earn a higher rate of return, somewhere else, say, investing in stocks or bonds or other riskier investments. Or, if you want the security of an investment insured by the federal government, a certificate of deposit may pay a higher interest rate—but typically only if you leave your deposit untouched for a specified period. 

But, if you’re looking for a safe, secure place to deposit your money—where you’ll typically earn a higher rate of return than a traditional savings account and have easy access to your cash—then a high-yield savings account could be just the ticket for you.