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Money Stories
Team Daylight

Money Moves: Why you need a high-yield savings account

Not all savings accounts are created equal – and, in fact, keeping your savings in the account your bank offers might not be the best option. If you want your money to make money in the form of interest, opening a high-yield savings account might be the right money move for you.

What are high-yield savings accounts?

If you want to get technical about it, a high-yield savings account is “a money market account that gives you higher interest payments than a regular savings account.” If you’re talking to a banker, they might call these accounts money market deposit accounts, or MMDAs.

Banks and credit unions typically offer high-yield savings accounts, similar to checking accounts, and several online banks offer high-yield savings accounts. Whatever route you choose, be sure that you’ll be able to make deposits and withdrawals at any time, and the funds are FDIC-insured up to $250,000 per depositor per institution.

Traditional savings accounts vs high-yield savings accounts

The interest rate on a high-yield savings account is typically above one percent APY (annual percentage yield) and can be as high as three percent or more. To qualify for these rates, you'll likely need to maintain a certain minimum balance in your account, but you can also make additional deposits and earn interest on them.

High-yield savings accounts are best for people who want to save money and earn extra interest without worrying about depositing large sums of money into their accounts every month. If you don't plan on depositing large sums of money into your account each month, it's unlikely that you'd earn much more than one percent APY from another type of savings account anyway.

Benefits of high-yield savings accounts

Whether you’re saving up to welcome a new family member into your home or you want to build up your emergency fund, there are a ton of benefits to high-yield savings accounts.

Interest rates

• High-yield savings accounts have much higher interest rates than traditional accounts. Traditional savings accounts usually offer a 0.01 percent annual percentage yield (APY), but high-yield savings accounts can offer as much as three percent APY.

• In addition to the extra interest, you may receive other perks with your high-yield savings accounts, such as free checking or ATM withdrawals.

• Even if you choose to go with an online-only bank, you’ll be able to withdraw and deposit funds as needed – so if there is an emergency, you’ll have money at your fingertips.

Saving for the future

Many people use high-yield savings accounts as part of their retirement or long-term financial planning strategies. If you aim to purchase a house or send your child to college, this account can help you meet those goals by earning higher interest than most other investments.

If something happens and you need to take out money from your account, there will be no charge for the withdrawal. With a regular savings account, there's usually a fee associated with making withdrawals before reaching a certain amount of time since opening the account.

High-yield savings accounts also have benefits that other investments don’t. Most importantly, you don't have to wait until your balance reaches a certain amount before you can withdraw from these accounts — unlike certificates of deposit (CDs). 

How to find a high-yield savings account

So you’re ready to open a high-yield savings account? An excellent place to start looking for high-yield savings accounts is at your local credit union. Credit unions often offer higher interest rates on their money market and savings accounts because they don't have to pay as many fees to their depositors as banks.

Some banks and credit unions offer higher rates on their savings accounts than others. Still, these institutions usually have strict requirements you must meet before they allow you to open an account and earn a higher rate.

For example, many banks require that you always have a minimum balance in your savings account. This requirement can vary depending on the institution, so ask for the minimum balance before opening an account.

So if you're wondering whether high-yield savings accounts are worth the extra time and effort, the answer is yes. Whether you are using it for yourself or your retirement savings account, you can benefit both now and in the future from investing in a high-yield account.