What a high-yield savings account is and why the rate matters
A high-yield savings account is a regular savings account where the bank pays you more interest on the money you deposit. The difference between a standard savings account and a high-yield one is the annual percentage yield (APY) — the rate the bank promises to pay you each year. A typical brick-and-mortar bank might offer 0.01% APY. A high-yield account at an online bank often offers 4% to 5% APY, though this rate changes when the Federal Reserve adjusts interest rates.
The higher rate means your money grows faster without you doing anything. On $10,000, the difference between 0.01% and 4.5% is roughly $450 per year. That gap widens as your balance grows. High-yield accounts work best for money you want to keep safe and accessible — an emergency fund, a down payment you are saving for, or money you plan to use within a few years.
Most high-yield accounts are at online banks because they have lower overhead costs than branches. You manage the account through a website or app, not in person. The tradeoff is that you cannot walk into a physical location, but for a savings account where you are not making frequent withdrawals, that rarely matters.
Key Takeaways
- High-yield savings accounts at online banks currently offer 4% to 5% APY, compared to 0.01% at traditional banks, though rates change when the Federal Reserve moves.
- You will need a government-issued ID, proof of address (a recent utility bill or lease works), and your Social Security number to open an account.
- The entire process — from starting the process to having a working account — usually takes one to three business days.
- Your deposits are insured up to $250,000 per account at any bank that carries FDIC insurance, which nearly all online banks do.
- Once the account is open, you can move money in and out through transfers from another bank account, direct deposit, or wire transfer.
Where to find high-yield savings accounts and compare rates
High-yield accounts are offered by online banks, credit unions, and a few traditional banks. The best-known online banks with high-yield accounts include Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings, Discover Bank, and Capital One 360. Credit unions sometimes offer competitive rates too, though you usually have to be a member or live in a certain area to join.
The APY changes frequently — sometimes weekly — so the rate you see today may not be the rate you lock in tomorrow. Before you open an account, visit the bank's website directly and look for the current APY displayed on the savings account page. Some comparison sites like Bankrate, DepositAccounts, and NerdWallet update rates daily and let you sort by APY, but always verify the current rate on the bank's own site before you start the process.
When comparing accounts, look beyond the rate. Check whether the bank charges monthly fees (most high-yield accounts do not), whether there are limits on how many times you can transfer money out per month (federal rules used to cap this at six, but that rule was relaxed; most banks no longer enforce it), and whether the bank offers features you want, like the ability to set up automatic transfers or link multiple accounts.
Documents and information you will need to provide
To open a high-yield savings account, you will need to provide personal information and proof of identity. Have these items ready before you start the process:
- A government-issued photo ID (driver's license, passport, or state ID card)
- Your Social Security number
- Proof of your current address, such as a recent utility bill, lease agreement, or bank statement dated within the last 90 days
- Your phone number and email address
- Information about a bank account you already have (routing number and account number), if you plan to transfer money in right away
Some banks verify your identity when ready using information from credit bureaus. Others may ask you to upload photos of your ID and proof of address. A few may call you to confirm details. The verification step usually takes a few minutes to a few hours, though occasionally it can take up to a business day if the bank needs additional information.
Step-by-step process for opening the account
The process itself is straightforward and takes about 10 to 15 minutes. Here is what to expect:
- Go to the bank's website or read their app and look for a button that says "Open an Account" or "get your free guide."
- Enter your personal information: name, date of birth, address, phone number, email, and Social Security number.
- Verify your identity. The bank will ask you to confirm details or upload photos of your ID and proof of address. Some banks verify when ready; others take a few hours.
- Choose your account type. Most banks have one high-yield savings account, but some offer multiple tiers. Pick the standard high-yield savings account unless you have a specific reason to choose another.
- Review the account terms, including the current APY, any fees, and the bank's privacy policy.
- Agree to the terms and submit your process.
- Wait for approval. Most banks approve applications within a few minutes to a few hours. You will receive an email confirming your account number and next steps.
- Fund your account. You can transfer money from another bank account, set up direct deposit, or wire money in. The first transfer usually takes one to three business days to appear in your new account.
Once your account is funded and active, you can begin earning interest. Interest accrues daily but is usually deposited monthly. You can check your balance and transaction history anytime through the bank's website or app.
How to move money into your new account
After your account is open, you have three main ways to add money:
Bank transfer: Link a checking or savings account you already have at another bank. You will need your routing number and account number from that bank. The transfer usually takes one to three business days. Most banks let you initiate transfers through their website or app without calling.
Direct deposit: If you receive a paycheck, you can have your employer deposit it directly into your high-yield account. Ask your employer's payroll department for a direct deposit form, or provide them with your new account's routing number and account number. Direct deposits typically arrive on your regular payday.
Wire transfer: You can wire money from another bank account, though this usually costs $15 to $30 in wire fees. Wire transfers are faster — usually same-day or next-day — but the cost makes them less practical for regular deposits. Use wire transfers only when you need money to arrive quickly.
Avoid transferring large amounts all at once if you are new to the bank. Start with a small transfer to confirm the account is working, then move larger amounts once you are confident the connection is find.
FDIC insurance and what happens if the bank fails
Your deposits in a high-yield savings account are protected by FDIC insurance (Federal Deposit Insurance Corporation) up to $250,000 per account at any bank. This means if the bank fails, the FDIC will reimburse you for your balance, up to that limit. Nearly all online banks that offer high-yield savings accounts carry FDIC insurance — you can verify this on the bank's website or by searching the FDIC's bank finder tool.
The $250,000 limit applies per account, per bank. If you have $250,000 in a high-yield savings account at one bank and $250,000 in a high-yield savings account at a different bank, both are fully insured. If you have two high-yield savings accounts at the same bank, the insurance typically covers only $250,000 combined across both accounts, unless one is in your name alone and the other is a joint account.
FDIC insurance does not protect you from fraud or theft if someone gains unauthorized access to your account. That is why you should use a strong, unique password for your bank account and enable two-factor authentication if the bank offers it.
What to do after your account is open
Once your account is active and funded, there are a few steps to find it and make the most of it:
Set up two-factor authentication if the bank offers it. This adds a security layer by requiring a code from your phone or email when you log in from a new device. Enable it in your account settings.
Decide whether you want to set up automatic transfers. Many people set up a recurring transfer from their checking account to their high-yield savings account on payday, which makes saving automatic and removes the temptation to spend the money. You can set this up through the bank's website or app.
Monitor your APY. Rates change frequently, and the rate you opened with may not stay the highest available. Check your bank's rate every few months. If it drops significantly below what other banks are offering, you can open a new account elsewhere and transfer your balance. There is no penalty for closing a high-yield savings account.
Keep your contact information current. If the bank needs to reach you about suspicious activity or account changes, they will use your phone number and email. Update these in your account settings if they change.
Frequently Asked Questions
Can I open a high-yield savings account if I have bad credit?
Yes. Banks do not check your credit score when you open a savings account. They verify your identity and may check ChexSystems (a banking history database), but a low credit score will not disqualify you. If you have been flagged in ChexSystems for unpaid overdrafts or fraud at another bank, some banks may decline your process, but most will still approve you.
What is the difference between a high-yield savings account and a money market account?
Both earn interest, but money market accounts sometimes offer slightly higher rates in exchange for requiring a larger minimum balance (often $2,500 or more) and limiting the number of withdrawals per month. For most people, a high-yield savings account is simpler because there are no withdrawal limits and no high minimum balance. Compare the rates at your bank to see which is better for your situation.
How long does it take to withdraw money from a high-yield savings account?
Transfers to another bank account take one to three business days. Withdrawals at an ATM are not possible because high-yield accounts are online-only and have no ATM network. If you need cash, transfer money to a checking account at a bank with ATMs, then withdraw from there. Plan ahead because the transfer takes a few days.
Will opening a high-yield savings account hurt my credit score?
No. Opening a savings account does not trigger a hard credit inquiry and does not affect your credit score. Banks may do a soft inquiry to verify your identity, but this does not show up on your credit report.
What happens to my interest if I close the account before the year is over?
You keep all the interest you have earned up to the day you close the account. There is no penalty for closing early. Interest is calculated daily and deposited monthly, so you earn a prorated amount based on how long your money was in the account.