A high interest savings account is a regular savings account that pays you more money on the balance you keep in it

The main difference between a high interest savings account and a standard savings account is the annual percentage yield (APY) — the rate at which the bank pays you interest. A standard savings account at a large bank might pay 0.01% APY. A high interest savings account typically pays somewhere between 4% and 5% APY, though this changes based on what the Federal Reserve does with interest rates. The higher the APY, the more your money grows just by sitting there.

You do not need much to open one. Most banks ask for an initial deposit (often $0 to $25,000, depending on the bank), a valid ID, your Social Security number, and proof of address. Some banks let you open the account online in about 10 minutes. Others require you to visit a branch or mail in documents. The account works like any savings account — you can deposit money, withdraw money, and watch your balance grow.

The catch is that high interest savings accounts usually come with limits on how many times per month you can withdraw money without a fee. Some banks allow six withdrawals per month; others allow unlimited withdrawals. If you go over the limit, you may pay a fee or the bank may convert your account to a different type. This is why these accounts work best for money you are not planning to touch often — an emergency fund, a down payment you are saving for, or money set aside for a specific goal.

Key Takeaways

  • High interest savings accounts pay 4% to 5% APY (or more), compared to 0.01% at many traditional banks, which means your money grows faster without you doing anything.
  • You need a valid ID, Social Security number, proof of address, and usually a small opening deposit to start an account.
  • Online banks and credit unions often offer higher APY than brick-and-mortar banks because they have lower overhead costs.
  • Most high interest savings accounts limit how many times you can withdraw per month, so they work best for money you plan to keep in place.
  • The APY you see advertised changes when the Federal Reserve changes interest rates, so the rate you get today may not be the rate you get in six months.

Where high interest savings accounts are offered

Online banks are the most common place to find high interest savings accounts. Banks like Marcus, Ally, American Express Personal Savings, and Discover offer these accounts and advertise their rates online. You open the account entirely through their website or mobile app, and you manage it the same way. Because online banks do not have physical branches or tellers, they spend less money running the business, and they pass some of that savings to you in the form of higher interest rates.

Credit unions also offer high interest savings accounts, sometimes called share savings accounts or money market accounts. Credit unions are member-owned financial institutions, and they often pay higher rates than traditional banks. To open an account at a credit union, you usually have to become a member first, which may require living in a certain area, working for a certain employer, or belonging to a certain organization. Some credit unions have no membership restrictions.

Traditional banks — the kind with branches on your street — offer high interest savings accounts too, but their rates are usually lower than online banks or credit unions. If you already have a checking account at a traditional bank and want to keep all your money in one place, opening a savings account there is straightforward, but you will earn less interest.

What documents and information you will need

Before you open an account, gather these items. You will need a valid government-issued ID (a driver's license, passport, or state ID card). You will need your Social Security number. You will need proof of your current address — a recent utility bill, lease, mortgage statement, or bank statement usually works. Some banks accept a government-issued ID with your address on it instead.

You will also need to decide how much money you want to deposit to open the account. Most online banks have no minimum opening deposit, or a minimum of $0.01. Some credit unions or traditional banks may ask for $25 to $500. Check the bank's website before you start the process so you know what to expect.

If you are opening the account online, you will type this information into a form on the bank's website. If you are opening it in person or by mail, you will fill out a paper process. Either way, the bank will verify your identity — they may check your credit report (this does not hurt your credit score), and they may ask you to confirm recent transactions on another account you own.

The step-by-step process to open an account online

Most online banks follow the same basic process. Go to the bank's website and look for a button that says "Open an Account" or "get your free guide." Click it. You will be asked to enter your email address and create a password. The bank will send you a confirmation email — click the link in that email to continue.

Next, you will enter your personal information: full name, date of birth, Social Security number, and current address. The bank will ask about your employment and income (they use this to prevent money laundering, not to decide whether to let you open the account). You will choose a username and set up security questions. Then you will review the account terms and agree to them.

The bank will verify your identity, usually by checking your credit report or asking you to confirm details from your credit history (like "What was the loan amount on your car?"). This takes a few minutes. Once you pass verification, you can link a bank account you already own and make your opening deposit. Some banks let you deposit when ready; others wait one to two business days for the transfer to clear.

You will receive your account number and routing number by email or in the app. You can start using the account right away, though you may not see interest posted until the end of the month.

How to move money into your new account

Once your account is open, you need to fund it. The easiest way is to link a checking account you already own at another bank. You provide the bank with your checking account number and routing number (you can find both on a check, or call your bank and ask). The bank will make two small deposits into your checking account — usually $0.01 and $0.02 — to verify that you own the account. You log into your checking account, find those deposits, and tell the high interest savings bank what the amounts were. Once verified, you can transfer money between the two accounts whenever you want.

You can also deposit money by mailing a check to the bank, though this takes longer (usually five to seven business days). Some online banks do not accept checks at all, so check the bank's website first.

If you are opening an account at a credit union or traditional bank with a physical branch, you can often walk in and deposit cash or a check when ready.

Understanding withdrawal limits and fees

Most high interest savings accounts limit how many times per month you can withdraw money without paying a fee. The limit is often six withdrawals per month, though some banks allow more and some allow unlimited withdrawals. This limit applies to transfers to other accounts, checks you write, and debit card withdrawals — basically any way you take money out.

If you go over the limit, the bank may charge you a fee (usually $10 to $25 per excess withdrawal) or close the account. Some banks will convert your account to a different type of account with a lower interest rate instead of charging a fee. Read the account terms before you open the account so you know what happens if you exceed the limit.

This is why high interest savings accounts work best for money you do not plan to touch often. If you need to withdraw money multiple times a week, a regular checking account or a money market account (which usually allows more withdrawals) might be a better fit.

What happens to your interest rate over time

The APY you see advertised is not may provide to stay the same forever. Banks set their rates based on what the Federal Reserve does with interest rates. When the Federal Reserve raises rates, banks usually raise the APY they offer on savings accounts. When the Federal Reserve lowers rates, banks usually lower the APY they offer. This can happen several times a year.

Some banks are faster to raise rates than others, and some are slower to lower them. If you shop around and find a bank offering a higher rate, you can open a second high interest savings account there and move your money. There is no penalty for closing an account or moving your money to another bank.

You will not see your interest added to your account every day. Most banks calculate interest daily but post it once a month, usually on the last day of the month. Some post it quarterly. Check your account terms to see when interest is posted.

Frequently Asked Questions

Do I need good credit to open a high interest savings account?

No. Banks do not check your credit score when you open a savings account. They may check your credit report to verify your identity and prevent fraud, but this does not affect your credit score. Even if you have bad credit or no credit history, you can open a high interest savings account.

Can I have more than one high interest savings account?

Yes. You can open accounts at multiple banks and move money between them. Some people open accounts at different banks to take advantage of different interest rates, or to keep money for different goals in separate accounts. There is no limit to how many savings accounts you can have.

What if I need to withdraw money before the month ends and I have already hit my withdrawal limit?

Call the bank and ask. Some banks will waive the fee if you explain your situation. Others will charge the fee. A few will let you make one extra withdrawal per month without penalty if you ask. It depends on the bank's policy, so it is worth asking before you assume you will be charged.

Is my money safe in a high interest savings account?

If the bank is FDIC-insured (which most online banks and traditional banks are), your money is protected up to $250,000 per account. If the bank fails, the federal government will return your money. Credit unions are insured by the NCUA, which offers the same protection. Check the bank's website to confirm it is insured before you open an account.

How much money should I keep in a high interest savings account?

That depends on your situation. Many people keep three to six months of living expenses in a high interest savings account as an emergency fund. Others use it to save for a specific goal like a down payment or a vacation. Because of the withdrawal limits, it works best for money you plan to keep in place for at least a few months.