The Federal Reserve has been steadily raising interest rates since early 2022 as it aims to control inflation. As a result, holding your money in a high-yield savings account has become increasingly attractive because the interest you can earn on your deposits has skyrocketed to record levels in 2023.
In fact, the annual percentage yield (APY) paid out by the top nationally available high-yield savings accounts is 5% or higher. This is much higher than the average rates listed by the Federal Deposit Insurance Corporation (FDIC) of 0.40% for savings accounts.
Since savings account yields fluctuate based on the federal funds rate, and the Federal Reserve may or may not make changes to the target rate this week, it's not possible to lock in these enticing yields over the long term. However, with rates as high as they are now, it could be the perfect opportunity to open a high-yield savings account to ensure that you're earning as much as possible on your deposits while you can. The sooner you deposit funds into a high-yield account while rates are high, the longer you'll enjoy higher interest payments before rates fall.
Key Takeaways
- The top high-yield savings accounts pay significantly higher interest rates than traditional savings accounts.
- The Federal Reserve is expected to announce tomorrow a pause in rate hikes for now, but eventually rates will fall, meaning your time to maximize your savings account funds could be limited.
- Opening a high-yield savings account is as simple as shopping around for the right rate and institution, and having your essential documents handy.
Benefits of High-Yield Savings Accounts
High-yield savings accounts pay significantly higher interest rates on your deposits than traditional savings accounts. In fact, the top high-yield accounts currently pay as much as 10 or 13 times the national average, which makes a big difference in how your savings accumulate, and can help speed you toward your financial goals.
High-yield savings accounts are often offered by internet-only banks or through the online division of larger banks that may also have a brick-and-mortar presence. Credit unions may also offer savings products with above-average yields.
Even if you open a savings account with a smaller financial institution, you can likely rest assured that your deposits are protected. Most banks carry FDIC insurance, which protects deposits of up to $250,000 per individual per institution. If your bank fails, you won’t be at risk of losing your savings. Credit union accounts receive similar protection through the National Credit Union Administration (NCUA) program.
Look for the FDIC or NCUA logo or language about membership on the bank or credit union's website or in a branch. That lets you know the institution's depositors are federally insured.
Getting Started on Your Savings Boost
In most cases, you can open a high-yield savings account online in a matter of minutes. The financial institution will ask for your Social Security number and some form of government-issued identification, but with a few clicks, you could be ready to capitalize on today's high rates.
Once you've opened your new account, you can use an electronic transfer to deposit funds. Even if you're transferring funds from another financial institution, you can automatically send the money by entering your new bank's routing and account numbers. Just keep in mind that transfers between banks could take up to three days, and you won't be able to access your money while the transaction is being processed.
Planning for Declining Rates
The rates that you can earn on your savings deposits vary and depend on the monetary policy decisions of the Federal Reserve, which is scheduled to have its June meeting today and tomorrow. Although rates have been climbing over the past year, leading to today's outsized savings opportunities, it is possible the Fed will pause its rate-hiking cycle and that rates will eventually begin to decline. The high-yield savings account rates are unlikely to plummet immediately, but the Fed changes will have a ripple effect.
The potential for rates to come down to earth in the coming months means that the currently high savings yields won't be around forever. With that in mind, maximizing your exposure to these high rates while you still can is a good idea.
However, if you are looking for a way to secure a fixed yield for an extended period, you could consider a certificate of deposit (CD). For instance, if you don't need access to your money for four years, you could lock in a rate of around 5% or more for that entire time frame with the top nationally available CDs.
FAQs
High-yield savings accounts offer notably higher APYs compared to traditional savings accounts, allowing your savings to grow more rapidly. Some savings accounts earn 5% or more. Safety and security. Funds deposited in these accounts are FDIC or NCUA-insured up to $250,000 per depositor, so your money is safe.
Is now a good time to open a high-yield savings account? ›
High-yield savings accounts (HYSAs), certificates of deposit (CDs) and other interest-bearing accounts now offer substantially higher yields than in recent years. According to the FDIC, a standard savings account earns a paltry 0.46% yield on average as of October 2023.
Is there a catch to a high-yield savings account? ›
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
What is the downside to a high-yield savings account? ›
As easy as it is to withdraw money from a high-yield savings account, there may be limits to the number of withdrawals allowed per month or year. Going over that limit can incur extra fees. Some banks may even close the account if the withdrawals become excessive and don't meet the terms set by the bank.
How much will $1000 make in a high-yield savings account? ›
If you deposit $1,000 into a high-yield savings account with a 4.5% annual percentage yield (APY), you'll earn a little more than $45 in interest after one year. With an APY of 5%, your interest earnings would be about $51 after one year.
Which bank is giving 7% interest in savings accounts? ›
As of August 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Is a high-yield savings account good during a recession? ›
A high-yield savings account will help you earn much more than the average rate of return, which means your money will work harder for you. Even if interest rates dip during a recession, a high-yield savings account will typically earn several times the national average for savings accounts.
Can I lose my money in a high-yield savings account? ›
As long as you're banking with an FDIC-protected bank, you're not risking losing your money when you deposit it into a high-yield savings account. However, the rate of inflation can be higher than your APY, resulting in a negative real return, or the return after taxes and inflation are taken into account.
Do millionaires use high-yield savings accounts? ›
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.
How much will $20,000 make in a high-yield savings account? ›
What if the Fed cuts interest rates?
| Time | Account A (after 0.25% of Fed rate cuts) (4.75% APY) | Account B (after 0.50% of Fed rate cuts) (4.50% APY) |
|---|
| 6 months | $469.49 | $445.05 |
| 1 year | $950 | $900 |
| 2 years | $1,945.12 | $1,840.50 |
| 3 years | $2,987.52 | $2,823.32 |
6 days ago
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.
Should I put all my money in a high-yield savings account? ›
While high-yield savings accounts offer higher interest rates than traditional savings accounts, they may not outpace inflation, potentially eroding your purchasing power over time. As a result, they're not typically recommended for long-term wealth-building or retirement savings.
Should I transfer my savings to a high-yield savings account? ›
Should I put all my money in a high-yield savings account? Most HYSAs limit withdrawals to six per month, which could make it hard to access funds. And while the return is better than a traditional savings account, it won't provide the growth necessary for long-term wealth compared to stocks and bonds.
Is it hard to withdraw money from a high-yield savings account? ›
With a high-yield savings account, you can expect relatively easy access to your money. Some financial institutions may limit how many free transfers and withdrawals you can make each month, but liquidity generally isn't an issue. That makes a high-yield savings account a good place to store your emergency fund.
How much will $5000 make in a high-yield savings account? ›
How about a high-yield savings account instead?
| Starting amount | APY | Interest earned in a year |
|---|
| $5,000 | 5.31% | $272.66 |
| $5,000 | 5.26% | $270.02 |
| $5,000 | 5.05% | $258.97 |
Jul 17, 2024
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
What is the forecast for a high-yield savings account? ›
The highest savings account rates have stayed around 5% APY during the first half of 2024. The Federal hasn't lowered rates so far in 2024, which has impacted savings account rates. A high-yield savings account is still a good place for savings regardless of economic conditions.
Can you loose money in a high-yield savings account? ›
As long as you're banking with an FDIC-protected bank, you're not risking losing your money when you deposit it into a high-yield savings account. However, the rate of inflation can be higher than your APY, resulting in a negative real return, or the return after taxes and inflation are taken into account.
Does opening a high-yield savings account affect credit score? ›
Although opening a high-yield savings account can offer many benefits, it won't help you build a credit history. That's because bank account activity typically isn't reported to credit bureaus and doesn't affect your credit score.
What is the best high-yield savings rate right now? ›
The highest high-yield savings account rates today are offered by First Community Bank (6.00%), Sovereign Bank (5.40%), and MyBankingDirect.com (5.35%). These, along with our picks for the best high-yield savings accounts, offer rates at least 10 times the national average savings rate of 0.90%.
