How to choose the right high-yield savings account for you

When looking for a high-yield savings account, where and how you bank, how much interest you can earn, and the bank’s fine print can help determine which account will best meet your financial goals.

A good starting point is to see what your current bank or credit union offers. If you keep your money at a brick-and-mortar institution, there’s a chance you won’t find a high-yield savings account among its offerings. If that’s the case, you may want to look into an online bank for an account with an above-average interest rate that meets your needs.

Online banks often offer higher interest rates and lower fees on savings accounts because they have fewer overhead costs than traditional banks, which have to pay for real estate, bigger staffs, and other expenses. In some cases, high-yield savings accounts, also known as high-interest savings accounts, offer annual percentage yields of 4% or more compared with the average national savings account interest rate of 0.33%.

If you’re searching for a high-yield savings account, maximizing your interest rate is likely your main goal, but that isn’t all that matters when choosing one. Read on to learn about key considerations when choosing a high-yield savings account.

Interest rates

The biggest appeal of a high-yield savings account is its higher-than-average interest rate. The rate is usually listed as an annual percentage yield (APY). It represents how much you will earn on the money in your account over a year, including the effect of compounding interest. Compound interest is the calculated return you earn on your initial deposit and on the interest you’re earning. For example, if a savings account compounds daily, you’ll earn interest on your principal and the interest you earn each day.

Some banks offer traditional savings accounts with APYs as low as 0.01%, while high-interest savings accounts typically offer APYs between 3% and 4% or even higher. The difference in your return is significant. If you deposit $1,000 in a traditional savings account with an APY of 0.33%, you’ll have $1,003 after a year. But if you put the same $1,000 deposit into an HYSA with a 3.5% APY, you’ll end the year with $1,035.

Fees and requirements

The APY may be the biggest factor when choosing a high-yield savings account, but it’s important to understand all the terms you’re signing up for when you open one. High-yield savings accounts, especially those offered by online banks, tend to have fewer fees and requirements — and fewer bells and whistles — than traditional savings accounts. As with all financial decisions, it’s important to read the fine print before you commit. Here are some of the fees and requirements to keep an eye out for when choosing your savings account:

FEES

• Maintenance fee

• Minimum balance fee

• Withdrawal fee

• Out-of-network ATM fee

REQUIREMENTS

• Minimum initial deposit

• ACH-only deposits and withdrawals

Online vs. brick and mortar

Online banks often offer the best APYs and lowest fees on high-yield savings accounts. That’s a clear positive, but you should remember that when banking at an online institution, you won’t be able to bank in person. Furthermore, making cash deposits and withdrawals can take longer, require you to locate an in-network ATM, or may not be allowed at all.

Easy access

Look for a high-yield savings account that offers at least one of these features:

• ATM access so you can withdraw and deposit money

• The ability to link your savings account to an internal or external checking account

• A mobile app that allows you to manage your money

• Mobile check deposit, direct deposit, or automatic transfers from another account

Remember, transfers between accounts can take as long as one to five days to process.

Customer service

There may come a time when you need help with your account. Be sure the bank you’re considering offers the type of customer service support you want, such as 24/7 service and the ability to speak to a live person on the phone.

Insured and protected

The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) are federal agencies created by Congress to protect customer deposits at financial institutions. It’s unlikely you could find a high-yield savings account that isn’t insured by one of these agencies, even if you searched for one. However, verifying that your financial institution’s deposit accounts are insured is still a good idea.