What a High-Yield Savings Account is and Why You Need One

There are many different types of bank accounts to choose from, whether you’re looking to stash your savings for a rainy day or just need somewhere to park your paycheck each month. High-yield savings accounts are one such option offered by many online and brick-and-mortar banks. 

Also referred to as HYSAs, these depository accounts offer more competitive interest rates than their standard checking and savings counterparts. Here’s a look at what high-yield savings accounts are, how they work, and what makes them unique.

What Is a High-Yield Savings Account (HYSA) and How Does It Work?

You can probably tell just by looking at the name that a high-yield savings account (HYSA) is a bank account that provides a high-yield return on your savings. These accounts are offered by a variety of banks, credit unions, and other financial institutions. So, whether you prefer an online-only experience or enjoy a local presence, you can bank how you want.

The funds held in an HYSA remain liquid and accessible, so you can withdraw your money at any time if you need it. Unlike with a certificate of deposit (CD) or other long-term savings vehicles, there’s no penalty for pulling out your funds even if they weren’t deposited for long.

What Makes a High-Yield Savings Account Different from a Checking Account?

Chances are that if you have an everyday bank account where you deposit income and manage regular spending, it’s a checking account. So, how does a high-yield savings account differ?

They’re intended for savings… not everyday funds

HYSAs are depository accounts, meaning that they are intended to hold money that you don’t plan on spending right away. And, as a depository account, they often have withdrawal limits.

Depending on your bank, you’ll need to be careful not to exceed a certain number of withdrawals (typically six, though this can vary by bank) in a single statement cycle. If you do, your account could be converted to a transactional account, you may incur penalty fees, or you might even have your account closed.

Checking accounts, on the other hand, are transactional accounts. This means they’re intended to be used for everyday transactions: money coming in and money going out. There generally aren’t any maximum transaction limits on these types of accounts, so you can spend as needed without any penalty.

The interest rates can be very different

Interest rates on checking accounts can be very low, if the account even offers a return at all. HYSAs, on the other hand, are known for offering annual percentage yields (APY) that are exponentially higher than what your checking account may be paying.

Every additional penny you get in interest is a free penny you didn’t have to actively earn (though, you do have to pay taxes on interest earned at the end of the year). So, find the highest APY you can when picking a bank account!

What Makes a High-Yield Savings Account Different from a Standard Savings Account?

Both standard savings and high-yield savings accounts are designed for your out-of-sight money. Whether you use them for your emergency savings, a vacation, or just extra cash from your budget that you don’t want to be tempted to spend, they hold the funds you don’t plan to spend today.

Both types of accounts:

• Are depository in nature and may have transaction limits each statement cycle

• Pay interest on the balance held

• May offer limited access to funds (debit cards generally aren’t provided, though checks might be)

The APY on HYSAs can be significantly higher than standard savings

The biggest difference between an HYSA and your everyday savings account is how much you can earn in interest on your balance. Depending on the bank and specific account you choose, you could snag a high-yield APY that is 10, 20, or even 50 times higher than your basic savings account is offering. 

HYSAs aren’t offered by all banks

Commonly, consumers will opt for a savings account at their everyday bank, since that’s where they already have a relationship thanks to a checking account or other services. Most banks do offer some form of savings account,but not all financial institutions offer high-yield savings accounts.

If you want an HYSA, you may need to shop around and even open an account through a different financial institution. In some cases, you could find that the best HYSA available to you is through an online bank, which may not even offer checking accounts. 

Bottom Line

If you want to maximize the interest earned on your savings, a high-yield savings account (HYSA) is generally the best option. Though not available at all banks, these accounts offer an above-average APY on your savings, whether you’re setting aside a college fund or stashing your spending money for the holidays.