What is a high-yield savings account, and how does it work?

• A high-yield savings account typically earns a higher savings rate than a traditional savings account.¹

• Your savings account rate isn't fixed—it can rise or fall over time, largely because the Federal Reserve raises and lowers interest rates.²

• Consider an account's full value—its rate, any fees or minimum balance requirements, whether it offers an automatic savings plan, and whether it provides FDIC insurance.

• In an FDIC-insured account, your money is insured up to allowable limits, so it's protected in the unlikely event of a bank failure.³

• It's a common account for an emergency fund—money you want to keep growing but within reach—while a CD is better for money you can set aside for a set term.⁴

A high-yield savings account is one of the simplest ways to earn more interest on money you want to keep safe and within reach.

Here's how a high-yield savings account works, how it compares with a regular savings account and a CD, what to look for when choosing one, and whether it's worth it.

A high-yield savings account works like any other savings account, with one key difference: the interest rate is typically higher.¹ Your interest rate is the annual percentage of your balance that the bank pays you for keeping money in the account⁵—sometimes called a savings interest rate. Even if your savings are already in a high-yield account, it's worth checking now and then that your rate is still competitive with other high-yield savings accounts.¹

You earn money on a high-yield savings account through interest—the bank pays you a percentage of your balance for keeping your money in the account.⁵ How much you actually earn depends on your balance and the account’s rate, so it can help to compare rates between banks and estimate a year of interest before you choose.

Your savings account’s rate doesn’t stay fixed. One reason savings rates rise and fall is the Federal Reserve, called the Fed for short, which sets monetary policy in part by changing interest rates.² When economic growth is low, the Fed might lower rates to make borrowing cheaper and encourage spending. When the economy grows, the Fed may raise rates to slow spending and help avoid inflation.² As the Fed adjusts rates, it can affect the rate on your savings account. That means the yield on a high-yield savings account can move up or down over time, which is why it may help to compare rates every so often.

The difference that matters is the rate. A high-yield savings account typically pays a higher savings rate than a traditional savings account, so the same balance can earn more interest over time.¹ Otherwise the two work the same way, with the same easy access to your money. That higher rate is the main reason savers move money they’d typically keep in a regular savings account into a high-yield one. Because the rate on either account can change over time, it's worth comparing what each pays before deciding where to keep your savings.¹

It depends on whether you value easy access to your money or a locked-in rate. A high-yield savings account gives you access to your money while earning a rate that can change. A certificate of deposit, or CD, is a different trade-off: it requires you to keep your money in the account for a set amount of time, called a term—such as 6 months, a year or longer.⁴ There are usually penalties for withdrawing money before the term ends. However, CDs can offer higher rates than a traditional savings account because the bank can count on your money staying put for that term.

A key perk of a CD, especially when rates are falling, is that the CD interest rate is typically fixed for the term. So even if a traditional savings rate dropped during that time, your CD rate would stay the same, giving guaranteed returns until the term ends. In short, a high-yield savings account may work better for money you want to keep within reach, while a CD (or CD laddering) may work better for money you can set aside for a term in exchange for a rate that stays fixed.

When you compare accounts, look for the full value each one offers: its rate, its fees and minimums, if it has an automatic savings plan, and if it provides FDIC insurance.

A competitive rate

Rates can vary quite a bit from one bank to the next—so it's worth confirming your rate is competitive with other high-yield savings accounts^.1

Fees and minimums

Some savings accounts charge monthly maintenance fees, which quietly take money out of your savings account. Some charge you if you don’t keep a certain minimum balance. Looking for an account without fees or minimums helps more of your money stays yours. It's also worth watching for common bank fees, like ATM withdrawal fees and paper statement fees, and trying to avoid them.

Automatic savings

Many savings accounts offer automatic savings plan options that move money to your savings from another account, like your checking account, at a frequency you choose.⁶ Once you set how much and how often, it happens on its own—so you can save without keeping it top of mind. It can also help you budget: move $100 from checking to savings every Friday, and you have a clearer picture of what's free to spend.

Many are, and it's a good idea to keep your savings in an account that provides FDIC insurance. That means your money is insured up to allowable limits, so it's protected in the unlikely event of a bank failure.³ Learn more about FDIC insurance coverage.

A high-yield savings account is a natural home for an emergency fund. That’s because the money stays within reach for unexpected expenses while still earning a competitive rate. A common guideline is to save about 3 to 6 months' worth of living expenses for the unexpected.⁷

Keeping that emergency fund in an FDIC-insured account means it stays protected.³ Plus, the higher rate helps it earn more than it would in a traditional savings account.¹ Setting up an automatic savings plan can be a simple way to build that cushion over time without having to think about it.⁶ With an emergency fund saved up, you can continue your saving journey with a solid foundation.

The main risk to consider is that a high-yield savings account doesn’t lock in your rate. Interest rates may fluctuate, and because the Federal Reserve can raise or lower rates^,2 your rate can go up and down as well. If you have an FDIC-insured account, that money stays protected up to allowable limits.³ And since there’s no set term (like with a CD), you can move your money if a more competitive rate comes along.

For many savers, a competitive, low-fee, FDIC-insured high-yield savings account is worth it. It lets you potentially maximize your savings interest¹ while keeping your money accessible and protected up to allowable limits^.3 This makes the most sense if you want your savings to keep growing and stay within reach, for shorter-term goals or an emergency fund—rather than money you lock in for a set amount of time, such as a CD. Depending on your goals, a high-yield account doesn’t have to stand alone. You could open a CD for money you can set aside, pay down debt before the interest you owe on that debt adds up,⁸ or contribute to a retirement fund such as a 401(k), Roth IRA or traditional IRA.

Try this savings calculator to find out how much you could save in one year.