The Complete Guide to A High-Yield Savings Account

A high-yield savings account can help you save money by paying higher interest rates than other banks.

They are a great option when you’re saving for a specific goal or want money set aside for emergencies.

It might sound weird to bank only online, but it’s the best way to make your money work for you. Here’s everything you must know.

What is a High-Yield Savings Account?

A high-yield savings account is a savings account from an online bank that typically pays much higher interest than a brick-and-mortar bank. You’ll find interest rates 10 – 20 times higher than your regular bank pays.

Online banks can offer higher yields because they don’t have the same overhead as brick-and-mortar banks. They pass the savings onto its members, helping you earn more money on your deposits.

Each bank pays a different APY. So always look around to see what options you have to make the most interest on your contributions.

How do HYSAs Work?

High-yield savings accounts work the same as your brick-and-mortar bank. You can make deposits and withdrawals. However, the largest difference is you don’t have a drive-thru or bank to walk into to conduct your banking transactions.

Instead, you do everything online but can still access customer service from the banking staff if you have questions. You may get your answers faster, too, since you can chat online with most banks within seconds.

This might seem strange. How do you make deposits online and get your money out?

It’s all in the power of your smartphone.

Most online banks allow mobile deposit, which is a picture of the front and back of your check. You can also do electronic transfers from an external bank account to your online high-yield savings account.

If you need to withdraw money, the easiest way is to transfer the funds to the bank account with a local ATM. However, some online banks work with local ATM networks, giving you access to your funds at any bank with the specific ATM brand.


What Money Should you put in a High-Yield Savings Account?

You might think all your money should go into your high-yield savings account, right? But instead, why not earn as much interest as possible?

That would be great; however, some funds don’t belong in an HYSA.

Since the account is a savings account, you can only make up to six monthly withdrawals. You could lose your account or pay a penalty if you go over the limit.

For this reason, you shouldn’t put any funds you need for everyday spending or to pay bills. Instead, leave that money in your checking or ‘spend’ account. There’s no limit on the number of transactions in a checking account.

Instead, put any funds you want to keep separate and not spend in your HYSA.

For example, your emergency fund is safest in an HYSA. Since you shouldn’t touch your emergency fund unless you have a true emergency, such as falling ill or losing your job, you shouldn’t touch the funds. Instead, put them in the HYSA and use the ‘out of sight, out of mind’ tactic.

You can also use any funds you’re saving for other goals, such as paying for college or buying a house or car. But, remember, you can’t make many withdrawals, so don’t put any money you’ll need in the short term.

HYSA vs. Investing

A common debate is whether they should put money in a high-yield savings account or invest it.

The answer is both.

Diversifying your assets helps you grow your net worth and reach your financial goals. This means you should invest money AND keep your short-term savings in an HYSA.

Investing is a long -term game. You don’t want to invest money that you would need in the short-term – especially your emergency fund.

 Consider the funds in your savings account safe, especially if it’s in an FDIC-insured bank. 

How to Open a High-Yield Savings Account

Opening a high-yield savings account is simple, and it takes only a few minutes.

First, do your research and find the bank with the highest APY. Consider the requirements, though. Some advertise a high APY, but when you read the fine print, you learn it’s only for certain balances.

Some banks have tiered interest rates too, which means you earn a lower APY for lower balances, and it increases with your balance.

My recommended bank for opening a high-yield savings account is Marcus by Goldman Sachs. They are a reputable bank and I have had no issues using them. They also currently offer an interest rate of 2.15%!

To open an account, choose your bank and click ‘open account.’ You’ll provide basic information about yourself and identifying information so they can ensure you aren’t opening a fraudulent account. They’ll ask for your driver’s license number and social security number to verify your identity.

Once approved, you can fund your account by transferring money from another bank account. That’s all it takes to open an HYSA.

Things to look for in a High-Yield Savings Account

  1. FDIC Insured : This helps protect your money
  2. No Balance Requirements: You want to make sure your HYSA bank does not have a balance requiremenr
  3. No Fees: You shouldn’t be paying a fee to open an HYSA
  4. Interest Rates : At the time of writing this post, interest rates for HYSAs are higher since the Federal Reserve has been hiking interest rates to curb inflation. This means banks lend money at a higher interest rate, in turn paying you a higher interest rate on your money in the HYSA.

Final Thoughts

Everyone should have a high-yield savings account from an online bank. Even if you only have a little money in it, the contributions will grow with the higher interest rate.

It’s best to set up automatic deposits to your savings account so you regularly contribute and increase your earnings. Whether you have a specific goal or just need an emergency fund, putting your money in an account you can’t spend from often, and that earns more interest is the best way to increase your net worth.

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