High-Yield Savings Accounts: How to Find One and Why They Pay So Much More Interest

A high-yield savings account is a savings account that pays a much higher interest rate than a standard savings account at a traditional bank. The national average interest rate for a savings account at a traditional bank is around 0.45%, while many high-yield savings accounts at online banks currently pay between 4% and 5% annually. On $10,000 in savings, that difference amounts to roughly $455 in interest per year versus $45 at a traditional bank.

The reason online banks and credit unions can offer higher rates is that they do not operate physical branch networks. Without the overhead of hundreds of locations, tellers, and in-person staff, they can pass savings along in the form of higher interest payments to their account holders.

High-yield savings accounts are federally insured — accounts at FDIC-insured banks are protected up to $250,000 per depositor, per bank. Accounts at NCUA-insured credit unions carry the same federal protection. Your money is just as safe in a high-yield account at an online bank as it is in a brick-and-mortar bank.

These accounts work best for money you want to keep safe and accessible but are not spending in the short term — an emergency fund, money you are saving for a car or home down payment, or a cash cushion you want to keep separate from your everyday checking. They are not designed for money you invest in stocks, which carries different risk and potential return.

Opening one takes about 10 minutes online. You will link your existing checking account, transfer your savings, and from that point forward the interest accrues and compounds monthly or daily. You can move money in and out as needed. There is no lockup period.