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

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

A high-yield savings account is a type of savings account that offers higher interest rates than a traditional savings account. This means you can earn more interest over time, though you should always compare your options to ensure you're getting the best deal possible. A high-yield savings account is sometimes called an online bank or money market account.

What Is a High-Yield Savings Account?

High-yield savings accounts are a type of bank account that earns you more interest than other types of savings accounts.

There are two main kinds of bank accounts: checking and savings. A checking account is used to pay bills and make everyday transactions, while a savings account is where you store your money until it's time to use it (like when you want to buy something).

Suppose you have used a regular savings account because it has higher interest rates than other types of accounts like CDs or money market funds. In that case, switching over to one with even higher rates may be worth looking into if your goal is maximizing returns without sacrificing liquidity.

Lantern by SoFi professionals, "Interest rates across savings accounts can vary a little."

How Does a High-Yield Savings Account Work?

A high-yield savings account is a type of bank account that pays higher interest than a traditional savings account. It's also FDIC-insured, meaning that your deposits are covered up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).

To be clear: No matter what type of bank or credit union you use, even if it's not an online-only institution, you can compare rates from different banks to find one with the best rate for your needs.

Though some high-yield savings accounts offer more competitive interest rates than others, certain factors will affect how much you earn on your money over time.

Pros and Cons of a High-Yield Savings Account

If you're looking for a way to earn more interest on your money, a high-yield savings account might be right for you. However, there are some drawbacks to consider before opening one:

  • You may only be able to withdraw some of the funds in your account at a time. Some high-yield savings accounts limit the number of monthly withdrawals or require that they be made through direct deposit and automatic withdrawals only.
  • There might also be fees associated with using ATMs outside of the network that provides access to those machines--and these fees can add up quickly!

Bottom Line

A high-yield savings account is a great way to earn a higher interest rate on your money. The FDIC insures these accounts, so you don't have to worry about losing them if the bank fails. They're also good for storing money you will only need for a while, like saving up for something big or investing in other assets like stocks and bonds.

If you want access to your funds at any time, then this type of account might not be right for you--but if it suits your needs and goals perfectly well (and earns some extra cash), go ahead and open one!

A high-yield savings account is a way to earn interest on your money, but it's different than a traditional bank account. You can open one at almost any bank or credit union, and there are no minimum deposit requirements.

The biggest benefit of this type of account is that you'll earn more interest than with other types of savings accounts because it offers higher rates than typical banks do today.