If you are planning for an emergency fund, or short-term savings or have excess money in your checking account then it is a good idea to move it to a high-yield savings account (HYSA) because of the higher interest offered. Also, you don’t need to worry about maturity periods like the certificate of deposit (CDs).
What is high yield savings account (HYSA)?
As the name suggests, a high-yield savings account (HYSA) is characterized by a higher yield than a conventional savings account. As per FDIC monthly rate cap information (18 Sept 2023), the average interest rate on a savings account is 0.45%. But on average high yield saving account (HYSA) offers an interest rate of 5% or even higher. Thus, HYSA can provide 10 times or even higher interest compared to conventional savings accounts.
How to open high yield savings account (HYSA) ?
If you are a permanent resident or a U.S. citizen, then opening HYSA is a task of a few minutes. Just log in to your banking portal and fill out the application form. You may be asked for some basic personal information like mail ID, contact details, etc.
While opening a high-yield savings account (HYSA), you are not required to leave your main checking account instead it remains interlinked. You can transfer your funds whenever required.
How to use high yield savings account (HYSA) effectively?
Since there is very huge difference between interest given in HYSA vs. checking account, it is advisable to move your funds which you do not expect to use within a month to HYSA. If you do not do so you are missing out. You can consider opening multiple high-yield savings accounts (HYSA) for a more goal-oriented approach. Budgeting can be a really helpful tool to achieve this.
Plan your expenses in advance and calculate your approximate possible monthly savings in advance. And move it immediately to a high-yield savings account (HYSA) as your salary gets credited. Only keep the funds that you are expecting to be spent in a month in your checking account. This way you can increase your overall APY effectively.
Pros and Cons of high yield savings account (HYSA)
Pros:
- A high-yield savings account (HYSA) is a better way of saving as it offers a much higher APY and can help you achieve your financial goals more quickly.
- Money kept in high-yield savings accounts (HYSA) is FDIC just like conventional savings accounts. The insurance amount is $250,000 per account.
- You do not have to actively watch the market like in the case of stocks and ETFs.
Cons:
- The interest rates are dynamic in nature unlike bonds and fixed-rate CDs. Also, the average return from HYSE in the long run is expected to be lower than the return of ETFs and mutual funds.
- HYSE banks do not have physical locations so you might face difficulty if you are not familiar with online banking.
- Withdrawal is slower and limited.
- Some HYSE banks may even not provide the facility of ATMs or very limited ATM locations.
How to choose best high yield savings account (HYSA)?
Make sure to assess HYSA on these parameters to make a more informed decision. Make sure that the institution offering high-yield savings account (HYSA) is FDIC insured. Though a higher interest rate is of high priority other factors like minimum balance, withdrawal options, etc. are also important to consider.
Interest rate
The higher interest rate should undoubtedly be your priority. But keep in mind that the actual return that you get in your pocket is interest amount less fees and charges. So APY is a better parameter to use while comparing various high-yield savings accounts (HYSA).
Opening cost
Check the initial cost of opening an account. These costs have come down significantly due to higher competition.
Compounding frequency
Compounding frequency can alter the yield. More frequent compounding results in higher returns. So, the more frequent the compounding is, the better return you will get.
Minimum balance
You may be required to maintain a certain minimum balance in your high-yield savings account (HYSA) in some banks. So, make sure to check this detail to avoid problems later. You may be charged MAB fees if you can’t maintain this minimum amount. Some banks even offer zero minimum balance requirements.
Withdrawal rules
Thoroughly check the withdrawal rules like how many times can you withdraw, what will be fees for over-withdrawal, availability of ATMs, etc.
Top 5 high yield saving account (HYSA) in the USA
These 5 HYSAs could be a good option to consider if you planning to open one. Go through their features thoroughly and decide the best as per your requirements. There are many other options available out there. You can check them out also.
|
Bank |
Interest |
Other features |
|
Marcus by Goldman Sachs |
4.40% |
No minimum balance |
|
American Express |
4.30% |
No minimum balance |
|
Wealthfront |
4.3% |
No minimum balance |
|
Capital One |
4.3% |
No minimum balance |
|
Discover |
4.3% |
No minimum balance |
Is high yield savings account (HYSA) better than CD?
CDs are equally good investment instruments. The main advantage they offer over HYSA is that once you invest in a fixed rate, you will get this APY at the maturity whatever the change in interest rate during this period. However, the return of HYSA is variable and you may benefit from the increased interest rate or reduced APY due to the reduced interest rate.
Also withdrawing before maturity in the case of CDs might be difficult and can lead to penalties which is not the case with a high-yield savings account (HYSA) making it a more liquid option. However, a fixed-term feature of CD makes it a more suitable option for you if you are saving for an extremely important reason as it is harder to access this money and you are less tempted to take it out.
So, in conclusion, I would say CDs are more suitable for mid to long-term saving goals and HYSAs are a better way of saving for short-term saving goals.
FAQs
Best high yield savings account (HYSA) should be based on your priorities like minimum balance requirement & availability of ATM near your locality. So. make a comparison before selecting the best one according to your needs.
You can easily open a high-yield savings account (HYSA) by visiting your bank or via an online portal within a few minutes. Your checking account will be linked to your HYSA.
- Make sure that your bank is FDIC insured.
- Compare APY instead of interest rates.
- Availability of ATMs near your locality.
There is no doubt that HYSA are much better than regular saving accounts but still regular saving accounts are more popular may be due to trust issues and financial literacy and awareness. Keeping money in a regular savings account for a longer period could be your worst financial decision.