HIGH-YIELD SAVINGS ACCOUNT

A high-yield savings account (or high-interest savings account) is a savings account that earns a higher interest rate than a traditional savings account. It’s typically offered by an online bank that doesn’t have in-person branches, so the bank can pass on the savings to you in the form of a higher interest rate. A high-yield savings account is a good way to earn interest on your money while still keeping it readily available, so people often use it to save for short-term goals or as an emergency fund.

APY stands for annual percentage yield. It’s similar to the interest rate, but will be slightly higher because it includes compound interest. When your interest is compounded, you begin earning interest on your interest, not just on the amount you deposited. The more frequently your interest compounds, the faster your balance grows. Many high-yield savings accounts compound interest daily (a good thing for your balance!), and that’s reflected in the APY.

The goal is to find an account that will pay you a high APY while avoiding unnecessary fees and charges. For example, look closely at the minimum amount you need to keep in the account. Is that realistic for your situation? If there are any other restrictions, like on withdrawals or deposits, make sure you know what those are ahead of time and that they fit with how you want to use the account.

If you’re saving money for short-term financial goals and are comfortable with online banking, a high-yield savings account can be a great option. These accounts pay the highest levels of interest, helping your money grow faster than it will in any other type of savings account. Plus, you have the convenience of being able to withdraw money when you need it and the security of insurance from the FDIC.

In exchange for the higher interest rate on a high-yield savings account, you may have to give up other conveniences. Many high-yield savings accounts are offered by banks that don’t have brick-and-mortar branches, so it can be less convenient if you prefer doing your banking in-person. If you need a bank account for paying bills and making day-to-day purchases, a checking account will be a better fit.