What is a High Yield Savings Account and Why is it Important?

By: Aimee Malgapo

A high yield savings account (HYSA) is a type of savings account you can use with an online bank to build your savings with a higher interest rate.  A savings account with a brick and mortar bank will offer interest rates from .06% to .15%.  A high yield savings account can offer interest rates from 3.75% to 5% depending on which online bank you use.  These online banks offer a higher interest rate because they have less overhead expenses than a brick and mortar bank.  Currently, high yields savings accounts are offering a higher than typical rate because the Federal Reserve made a decision to increase the federal funds rate, the interest rate at which banks lend money to one another overnight.

Some people prefer a brick and mortar bank because their money is more easily accessible.  For people who have problems with impulse spending, it may be better to keep their money hidden away in an online savings account.  A HYSA is also a great place to store money for short term goals, such as a car, a vacation, or a down payment for a home.  Another benefit is that interest is paid out monthly for most high yield savings accounts unlike a Certificate of Deposit that only acquires interest after a specified amount of time.

You can feel safe putting your money into a high yield savings accounts because they are FDIC insured, which means that your funds are protected up to $250,000.  Unlike most brick and mortar banks, high yield savings accounts do not typically have monthly maintenance fees or minimum balance requirements.  Something to keep in mind regarding high yield savings accounts is they have a restriction on the number of withdrawals you can make per month without incurring fees. 

Some examples of banks that offer a high yield savings account are Marcus by Goldman Sachs, WealthFront, Ally, and CitiBank.  Remember to carefully review what each bank will offer before making a decision on which high yield savings account is best for you and your needs. 

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