How do high-yield savings accounts work?

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With a high-yield savings account, you’ll earn a lot more interest than you would with a traditional savings or checking account. That means you’ll generate more money from your savings over a shorter amount of time.

What's the catch? Sometimes with a high-yield savings account, you need to make a minimum deposit, maintain a minimum balance or pay regular fees — though that’s not always the case.


When you start looking for a high-yield account, the first number you’ll see will be APY, or annual percentage yield.

APY is the yearly rate of return on the money in your account, and it includes compound interest, which is the interest earned on your interest.

The more often your investment compounds and builds interest on the interest you’ve already earned, the faster your savings grow.

Comparing rates

So how much higher is the interest on a high-yield savings account? As of May 2020, the best rates were around 1.60% — that’s more than 150x higher than a traditional savings account.

If you were to put $10,000 into a traditional savings account with a 0.01% interest rate, you’d only earn $1 in interest during an entire year.

Compare that to a high-yield savings account with a rate of 1.60%, which would earn you $160 in interest over the course of a year — quite a difference. And that’s without making any monthly deposits.

At the same 1.60% rate, making a monthly deposit of $200 over one year would earn you $177.55; over three years it would earn you $657.03, and over five years it would earn you $1,306.81.

As you can see, making regular monthly deposits into a high-yield account will lead to serious gains over time.

High-yield savings accounts are secure

Secure money
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Like traditional savings accounts, high-yield accounts are federally insured up to $250,000 if you're dealing with a bank insured by the Federal Deposit Insurance Corporation (FDIC), or a credit union insured by the National Credit Union Administration (NCUA).

Old-school brick and mortar financial institutions aren’t your only secure option though; a growing number of high-yield savings accounts are being offered by online banks, and the FDIC insures many of them as well.

And since the Federal Reserve has slashed interest rates in the wake of the coronavirus pandemic, many of these small online banks are offering better high-yield savings options than their big-bank competitors at the moment.

Should I get a high-yield savings account?

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The great thing about high-yield savings accounts is that they’re versatile. Whether you’re planning for your wedding or preparing for retirement, you can rest easy knowing that the money you’re putting towards your goal is growing.

Some popular reasons for opening a high-yield savings account include:

  • Building an emergency fund.
  • Saving up for a big purchase, like a car or a home.
  • Starting a nest egg.
  • Creating a college fund for your kids.
  • Protecting your money against inflation.
  • Helping your general savings grow.

Whatever your goals are for your savings, opening a high-yield account is a smart move.

But before you jump at the first account your bank offers you, it’s worth it to shop around a bit and see what’s out there. After all, you’re not obligated to stick with your current financial institution if you can find a better rate somewhere else.

Here are a few key things you should look for when comparing your options for a high-yield account:

Interest rate

Obviously you’ll be looking for accounts with high interest rates, but make sure to clarify whether the rate being offered is standard or if it’s an introductory rate that will eventually go down. The highest rate isn’t always your best bet if it’s going to drop after just a few months.

You should also look into whether there are minimum or maximum thresholds you need to meet in order to maintain your rate, and confirm that they’re doable for you.


Some financial institutions may charge introductory fees for opening a high-yield account, and monthly maintenance fees for keeping it open. It’s important that you understand what these fees are and whether there are ways to avoid them.

Easy access to your money

How easy it will be to access the money in your high-yield account is another thing to consider. Some banks will allow you to make withdrawals instantly using an ATM card, while others may require a waiting period of several days before your transaction is processed.

Compounding offer

Lastly, you should find out how frequently the interest you earn from your account will be compounded. An account in which interest is compounded daily will grow your savings faster than an account where interest is compounded yearly. The more often interest is added to your balance, the more growth you’ll see in your savings.

Next steps

No matter how much money you have available for savings at the moment, opening a high-yield savings account is a wise decision.

Don't wait any longer — compare rates on some of the top high-yield savings accounts today.

About the Author

Shane Murphy

Shane Murphy


Shane is a reporter for MoneyWise. He holds a bachelor’s degree in English Language & Literature from Western University and is a graduate of the Algonquin College Scriptwriting program.

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