If You Don't Have This Type of Bank Account, You're Losing Money

What if I told you that there's a certain type of bank account that's often free to open, is easy to use, and can help you grow your savings and help you beat current inflation rates? Well, I'm not pulling your leg -- such an account exists. A high-yield savings account comes with some pretty sweet perks. Let's take a look at how high-yield savings accounts differ from standard-issue savings accounts and how you can choose one of your very own.

What does "high yield" mean, anyway?

You're probably at least a little familiar with savings accounts. They are a safe place to keep the money you need for near-term expenses, like an upcoming vacation or a large purchase. They're also a great place for your emergency fund. In exchange for keeping one funded, your bank will generally pay you a little interest on your money. One of the ways high-yield savings accounts differ from regular savings accounts is the much higher interest rates they pay -- that "high yield" that's right in the name.

Traditionally, APYs (annual percentage yields) on regular savings accounts have been quite low. For example, according to the FDIC, the average APY on a savings account as of July 2023 was just 0.42%. And this is an average, which means some accounts pay much more and some pay much less.

I actually have two savings accounts, one each at two different banks. My traditional savings account earns a paltry 0.01% APY -- but my high-yield savings account earns 4.25%, or over 10 times that U.S. average. It's been bumped up several times since I opened the account last spring. A higher federal funds rate is to thank for that, as the Federal Reserve attempts to tamp down inflation. Speaking of inflation, as of the last CPI report, it stood at 3.2% -- which means my high-yield savings account is currently beating it.

Can you get one at just any bank?

Another way that high-yield savings accounts differ is the type of bank that most commonly offers them. You can get a regular savings account from just about any bank, from your neighborhood bank that has just one or two branches in your town, all the way up to mega-banks with branches all over the country.

But high-yield savings accounts are offered by online banks. This is actually why they can afford to pay such a generous APY on your money -- since online banks don't have physical branches to pay for and maintain, customers benefit from better returns.

Plus, online banks are less likely to charge fees for inactivity or having a low balance -- I caught $50 worth of fees last year thanks to accidentally letting my regular savings account balance slip below the minimum required to avoid fees. So if you hate paying extra fees for the privilege of keeping your money in a bank account, look into online banks.

How do you choose the right high-yield savings account for you?

I'm hoping I've sold you on opening a high-yield savings account -- I love mine and it's made the process of saving money for my future goals and ongoing tax payments a lot easier. Consider these factors to choose the best high-yield savings account.

What's the APY?

APYs are variable, so don't assume that you'll get to keep that high rate forever -- especially if we start to see the Federal Reserve lower the federal funds rate. That said, if you're opening the account now, there are some very attractive APYs of 4% or higher available. I receive my interest payment on my account on the same day every month and I even put it as a recurring event in my calendar app, because I'm that excited about it.

Will you be charged fees?

Bank fees stink, and I recommend you avoid them whenever possible. It's important to remember that even an account without maintenance or minimum balance fees may still be subject to Regulation D, which limits you to six convenient withdrawals per month -- you may be charged a fee for going over.

How easy is it to fund the account?

Since the best high-yield savings accounts come from online banks, you'll want to make sure you can put money in the account without too much of a hassle. I can use a payments app to send money from my main checking account at a traditional bank to my high-yield savings, and this has been my go-to.

How about taking money out?

One potential pitfall of online banks is a lack of branches and a possible lack of convenient ATMs as a result. Check for a robust ATM network with locations near you. And unfortunately, many high-yield savings accounts don't come with an ATM or debit card; I had to open a (free) linked checking account alongside mine to get one.

Is the bank covered by FDIC insurance?

Finally, you need to know if your money is safe. FDIC insurance covers savings accounts for up to $250,000 in case of bank failure. Make sure the bank you're considering is covered by looking it up using the BankFind Suite tool.

High-yield savings accounts are great, and if you don't already have one, see what's out there and get in on the action!