High-Yield Savings Account

A high-yield savings account is a savings vehicle with high rates to quickly grow your retirement savings. Your rate of return for a high-yield savings account is measured in annual percentage yield (APY), which is how much interest you’ll earn within one year. Since high-yield savings accounts earn compound interest, the interest you earn over time will also accumulate interest.

While the national average return on traditional savings account is around 0.35%, you can earn over 5% with a high-yield savings account.

High-yield savings accounts are considered liquid assets compared to other investment options, like CDs, which require you to leave your money untouched for months or years to come. However, this doesn’t mean there is limitless access to your high-yield savings account. With some issuers, there may be limits on how often you can access your funds.

Generally, high-yield savings accounts are considered relatively safe investment vehicles for your retirement plan. You should consider your specific needs to ensure it’s a right fit for your financial goals.

If you’re looking for a secure, short-term investment to quickly maximize your savings, a high-yield savings account could fit the bill.

Due to its variable interest rates, high-yield savings accounts present risk if you’re considering one for a long-term investment. Your APY could fluctuate and decrease from what you were originally issued. So, it’s safer to consider high-yield savings accounts for a short-term investment since there’s no guarantee that you’ll maintain a high rate forever.

When choosing a high-yield savings account, consider its APY, deposit requirements, potential fees, accessibility and insurance coverage before opening an account. You should always shop around and compare these factors to avoid unnecessary risk before adding a high-yield savings account to your retirement portfolio.

Generally, a high-yield savings account with above 3% APY, no fees or minimum balance requirements from an FDIC-insured bank would be considered a safe investment. It’s important to understand how each feature works to determine which factors matter the most to you.

Expect a range of 3% to 5% APY with a high-yield savings account. If your high-yield savings account is offering under 2%, it isn’t really considered high-yield and you should look into different issuers with better rates.

To highlight your potential gains, let’s compare a high-yield savings account’s earnings to a traditional savings account. In this example, you’re looking to invest $10,000 for one year.

For this example, we’re assuming the APY rate stays the same. However, know that your rate is likely to fluctuate since high-yield savings accounts have variable interest rates.

While your interest rate and APY are related to one another, they aren’t interchangeable terms. Your APY is the amount of interest you will earn within your high-yield savings account in a year.

Your APY will be compounded daily, monthly or quarterly with your high-yield savings account, but most bank accounts compound interest monthly.

Some, but not all, high-yield savings accounts will require a minimum deposit or balance. If your account dips below the minimum, you could face a potential charge or fee.

According to the Consumer Financial Protection Bureau, high-yield savings accounts are likely to require a higher minimum balance compared to traditional savings accounts.

However, this isn’t to say all banks require a minimum deposit or balance. For example, Discover, Ally Bank and Citi Bank don’t require a minimum deposit for their high-yield savings account.

High-yield savings accounts are easy to open and fairly liquid compared to other investment vehicles. But some issuers have restrictions on how many withdrawals you can make. For example, with Discover and Ally Bank, you can only make six withdrawals per statement cycle.

Almost all high-yield savings accounts are FDIC insured for up to $250,000. This means if the issuing bank goes under, the federal government protects your assets up to $250,000. To confirm if your high-yield savings account is FDIC insured, make sure the issuing bank is FDIC insured. Typically, it will be boldly advertised on the bank’s website.

If you’re opening a high-yield savings account at a credit union, it will be insured by the NCUA instead, for the same amount. The same rule applies — confirm your credit union is NCUA insured before opening an account to lower any potential risks.

According to American Express, it typically takes under 10 minutes to open a high-yield savings account online. You will need to register for an account with the bank of your choice and fill out an application online.

On your application, you’ll need to input personal information, like your Social Security number and date of birth. You should also determine your initial deposit amount before starting your application.

After you receive confirmation that your account has been created, you will need to add funds to your high-yield savings account. You can do this by linking your current bank or by mailing a check. Linking your external account can take several days, according to American Express.

Once your high-yield savings account is opened, you can sit back and watch your retirement funds begin to grow. You can also add to your initial deposit to increase your gains.