Many banks offer high-yield savings accounts with rates that exceed those of traditional savings accounts. If you have $5,000 in savings, moving it from a traditional savings account to a high-yield savings account could result in hundreds of additional interest earnings each year.
These high savings rates are partly due to the federal funds rate, which is at its highest level since the early 2000s. Additionally, the number of high-yield savings accounts has grown over the years, especially in the online space. This increased competition has prompted banks and credit unions to increase their rates.
At DepositAccounts, we regularly add new high-yield savings accounts to our database, and we update rates daily to ensure we are showing you the best offers. But because the interest rate isn’t the only factor to consider when shopping for a high-yield savings account, we also track features such as minimum deposit and balance requirements, fees, and rate trends.
DepositAccounts strives to produce high-quality content that meets your needs and exceeds your expectations. Content is fact-checked to ensure accuracy and objectivity. DepositAccounts gathers thousands of savings account rates from banks and credit unions across the country to identify the best daily rates. Read more about our methodology here.
Most high-yield savings accounts are online accounts that must be opened and managed online or through a mobile app. These accounts are offered by online-only banks as well as by other financial institutions with physical branches and traditional savings accounts.
Many online banks provide high-yield savings accounts because these institutions have lower overhead costs than traditional banks with physical branches. This allows them to pass on the savings to customers through higher interest rates. It also enables online banks to offer accounts with low minimum balance requirements and low or no fees.
Online banks have a long history of offering accounts with rates that are significantly higher than traditional savings account rates. Currently, the highest online savings account rate listed on our website earns an annual percentage yield (APY) of 5.00% — about 12 times the average savings account rate of 0.41% APY.
High-yield savings accounts pay interest just like traditional savings accounts. Interest generally accrues and compounds daily or monthly. At the end of each month, the total accrued interest for the month is credited to the account, making it available for withdrawal.
With compound interest, you earn interest on both the original amount and the interest earned from the previous period. Daily compounding maximizes interest earnings, but its effect compared with monthly compounding is minor. That said, its effects are more apparent with a high-yield savings account because of the higher interest rate.
For example, if a savings account has an interest rate of 5%, daily compounding results in an APY of 5.13%. For a $10,000 balance over one year, a 5.13% APY would result in $514 of interest—$14 more than what you would earn with a 5% interest rate and no compounding.
Any savings account you open at a bank insured by the Federal Deposit Insurance Corp. (FDIC) is protected up to FDIC coverage limits. FDIC insurance applies regardless of whether the account is opened at a physical branch or through the bank's website.
Some credit unions also offer high-yield savings accounts. Credit unions have deposit insurance through the National Credit Union Administration (NCUA), and the coverage is essentially equivalent to FDIC insurance.
FDIC and NCUA deposit insurance protects accounts only if the financial institution fails. Federal regulations, however, limit your liability for losses on your savings account caused by certain types of fraud. You’re responsible for notifying the bank of an unauthorized withdrawal promptly, so it's important to review your bank statements monthly to check for unauthorized withdrawals.
A high-yield savings account can be useful for growing an emergency fund or working toward short-term goals. However, it has some disadvantages compared with other types of accounts.
Here are the pros and cons to consider:
The interest rate is only one of many factors to consider when choosing a high-yield savings account. Here are four other important factors to weigh:
The savings accounts in our rate table are ranked based on APY, with the highest APY listed on top. APYs are checked daily to ensure they match the APYs listed on the financial institutions’ websites.
If the savings account has tiered rates, the APY listed is based on the deposit amount specified in the rate table’s filter box. If the deposit amount is below the minimum balance required to earn the APY, the account may not be listed. If the selected deposit amount is above the maximum balance required to qualify for the APY, the account may also not be listed.
To be listed in our rate table, the savings accounts must be from either FDIC-insured banks or NCUA-insured credit unions. Also, the savings accounts must not require a checking account relationship to either open the savings account or qualify for the top-tier APY.
A high-yield savings account is a solid option if you’re looking to earn more on your savings than you would with a traditional savings account. When choosing a savings account, it’s important to compare the APY, fees, requirements and features so you can choose the right option for you.
There is generally no limit on the number of high-yield savings accounts you can open. However, some banks may reject your application if your ChexSystems report shows a negative banking history.
Interest earned on savings accounts is typically taxed as ordinary income. Banks and credit unions are required to report all interest earned on Form 1099-INT when the total interest earned on all accounts during the previous tax year is at least $10.