How We Picked
A high-yield savings account’s best role in your life is to bridge a gap in your portfolio. A traditional savings account won’t yield enough earnings to fund other investments. But you can use the ability of a high-yield savings account’s interest to save up a specific amount, and then re-invest the money elsewhere, like a money market, CD, annuity, or other investment option.
Plus, it offers the best of both worlds, saving securely and safely as an investment account would, but keeping your money liquid and accessible if you need to withdraw it. Choosing a high-yield savings account and treating it as a “bridge” to bigger and better financial endeavors makes it a must-have addition to your day-to-day financial life that can benefit you in more ways than one.
How did we decide what makes a great high yield savings account? We researched around 45 high yield savings accounts from the top banks for this guide.
The Best High Yield Savings Account picks are based on the consistency of high-interest rates, fees, minimum balance requirements, and account features. The overall rank for each institution within a specific category is dependant on how many days in the quarter that institution’s score was among the top 10.
What is a High-Yield Savings Account
One could argue that there is no exact number that truly makes a savings account “high yield.” Most of the basic savings accounts from national banks offer just 0.01% APY.
True high-yield savings account rates can be 100 times higher than those of their regular savings account counterparts.
Some of the top savings rates will offer interest rates that are 100 times as much as the savings rates from big banks.
Take this for an example: With $10,000 in a high-yield savings account of 1.00% APY, you’d earn $100 annually versus only $1 annually from 0.01% APY.
One dollar a year isn’t exactly the type of wealth to write home about.
How Do Savings Interest Rates Work
Every day you have money in your savings account, it earns a little interest. This is what the bank agrees to pay you in exchange for you giving them your money. When you open your savings account, you should shop around for the highest savings account interest rates. Banks usually pay you your total interest earnings once a month. They add all your earnings to your account at the end of every month. Savings interest rates do change over time, so the amount you earn per month can go up and down.
Higher rates matter more after compounding
Those rates may end up producing some pretty nice returns, but only if you never make another deposit. Normally, you wouldn’t let your account sit still without adding to it; the high-interest rate alone doesn’t take into account recurring deposits and the power of compounding interest -- when interest is earned on your account, the interest then earns interest itself, and so on.
But with every deposit you make, your interest rate has more to work with, giving you higher earnings. High-interest rates plus compounding interest are just two reasons to invest in a high-yield savings account.
How to calculate how much you’ll earn
Once you know the interest rate on your savings account, it’s a very easy calculation to figure out how much you’ll earn. Just multiply the amount of money in your savings account by the interest rate and divide the result by 100.
Why Online Banks & Credit Unions Have Higher Yields?
For one, financial institutions with an online- or internet-only presence get to save money by not having the overhead costs that come with maintaining a series of physical walk-in locations like a live, brick-and-mortar bank may have. Cost savings from not having to hire tellers or in-house employees can then be passed down to customers in the form of better products and higher interest rates.
Credit unions both physical and virtual already have this setup in place. Their not-for-profit nature means that the profits that they do raise are returned to its members through better rates and more competitive banking offerings.
For an online credit union, that means the chance to give customers high-yield rates because one, they’re a nonprofit, and two, they have no physical branch costs to contend with.
The lack of walk-in branch access may appear a drawback to some people who prefer consulting with tellers and account representatives for their banking needs. Many high-yield savings accounts, much like CDs, also require large minimum opening deposits, which can prove inaccessible to some.
Regardless, the positives can outweigh the negatives if you want to tap into high-interest rates with the convenience of accessing your funds anywhere, anytime.