What is a High-Yield Savings Account? How Does It Work?

What is a High-Yield Savings Account?

High-yield savings accounts are a type of federally-insured deposit account which aims to earn interest rates much higher than the national average.

High-Yield Savings Account Highlights:

- Typically, the best high-yield savings accounts offer 15-25x more than the national average interest rate on regular savings accounts - Most commonly offered by online-only banks like CIT Bank, Axos Bank, Comenity Direct, etc., because of their lower cost structure than brick-and-mortar banks - To qualify as a savings account, Federal Reserve Board Regulation D only allows 6 monthly withdrawals. 

Are There Trade-Offs to Holding Accounts at Different Institutions?

Undoubtedly, holding accounts at multiple institutions can add a wrinkle of complication to managing your finances. However, if you choose to hold accounts at separate institutions, know that electronic fund transfers (EFT), administered by the Automated Clearing House (ACH), make this setup easy to handle.

High-Yield Savings Account vs. CDs and Money Market Accounts

High-yield savings accounts often require an upfront minimum deposit and a minimum monthly account balance.  You can contribute to them over time, whereas CDs do not offer this ability.  Money market accounts offer competitive yields and can allow free debit card access and the ability to write a limited number of checks per month.

How Much Do I Need to Open a High-Yield Savings Account?

The amount of money needed to open a high-yield savings account will vary by institution.  Often, many institutions will only offer their best, advertised rate if you exceed some minimum account balance upon opening. 

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