What Is a High-Yield Savings Account (HYSA), and Why Should You Have One?

A savings account is a basic type of bank deposit account where you can safely store your money while it (ideally) grows with interest over time.

Think of a high-yield savings account as a traditional savings account on steroids, earning interest at a significantly faster rate.

Below, we’ll explore the typical attributes of the best high-yield savings accounts (HYSAs), how interest is calculated, pros and cons of HYSAs, and why everyone who can open one should open one.

Table of Contents

1. What is a HYSA?
   1. vs. traditional savings account
   2. vs. checking account
2. How is interest calculated?
3. Pros and cons
4. Should you open a high-yield savings account?

What is a HYSA?

A high-yield savings account is a savings account that earns interest far faster than the national average rate. Typically offered by online banks, which have lower overhead and can thus afford to pay out higher savings rates (and charge lower or no fees), HYSAs are one of the best ways to grow your money safely and steadily.

Like traditional savings accounts, a HYSA is typically insured up to $250,000 either by the:

• Federal Deposit Insurance Corporation (FDIC) for banks
• National Credit Union Administration (NCUA) for credit unions

This amount can vary by bank. SoFi, for instance, insures deposits up to $2 million.

Though the return on HYSAs is generally lower than that of a diversified, balanced portfolio of stocks and bonds, HYSAs won’t lose money if the market turns.

Money in a high-yield savings account is also far more liquid than money invested in the market or real estate. Nowadays, you can usually transfer funds to a linked checking account with the same bank immediately and then spend that money with a debit card or check. You might even be able to withdraw cash from your HYSA at an ATM.

High-yield savings account vs. traditional savings account

The biggest difference between a high-yield savings account and a traditional savings account is the annual percentage rate (APY), essentially, the rate at which your account grows with interest.

The national average savings account rate is currently 0.40%, according to the FDIC, while high-yield savings accounts hover around 3.50%. Some of the biggest banks in the country, such as Wells Fargo and Chase, offer a measly 0.01% APY on savings deposits.

By comparison, Capital One, my top choice for a HYSA, currently pays out a 3.40% APY and has the highest online banking satisfaction of any bank in J.D. Power’s 2025 U.S. Online Banking Satisfaction Study.

A challenge with the J.D. Power ranking is that it’s missing some excellent institutions from the mix, such as Goldman Sachs’ Marcus and Mass Mutual’s Flourish Cash. These are high-quality and strong financial institutions.
Keep in mind that some less-than-stable financial institutions advertise high attracts to attract desperately needed deposits, which is not a good sign.

	Traditional savings accounts	HYSAs
Account type	Deposit	Deposit
Account purpose	Saving money	Saving money
Interest rate*	0.40% on average	3.50% on average
Physical or online	Both	Primarily online
Insurance	Through FDIC or NCUA	Through FDIC or NCUA

High-yield savings account vs. checking account

Checking accounts are designed for you to spend money. They’re also the best place to receive your paycheck or government benefits via direct deposit.

The best way to use a checking account is alongside a high-yield savings account. Only keep what you need in the checking account to cover monthly expenses, and move the rest to savings so it grows faster. (Checking accounts often don’t earn interest; if they do earn interest, it’s nominal. The rate is so low you aren’t likely to notice a difference.)

	Checking accounts	HYSAs
Account type	Deposit	Deposit
Account purpose	Spending money	Saving money
Interest rate	0.07% on average**	3.50% on average
Physical or online	Both	Primarily online
Insurance	Through FDIC or NCUA	Through FDIC or NCUA

How is interest calculated for a high-yield savings account?

When you deposit money in a high-yield savings account, it accrues interest over time. But how does the bank calculate that interest?

Let’s start with the simple interest formula. You can use this to calculate how much interest you earn on your initial deposit.

Simple interest = P x R x T

Where:

P = Principal amount (initial deposit)

R = Interest rate

T = Number of time periods (usually years)

For instance, if you deposited $1,000 in a high-yield savings account that paid 4.00% interest and let it sit for three years, you’d use the following formula:

Simple interest = $1,000 x 0.04 x 3

Simple interest = $120

At the end of three years, you’d have earned $120, for a total of $1,120. The problem with simple interest? Things are never really that simple.

Instead, interest in a savings account compounds, often daily, monthly, or quarterly. So once you’ve earned interest, you’ll start earning interest on that interest. That’s why banks advertise an annual percentage rate (APY) instead of interest rate.

These calculations can get a little more complex because:

1. It depends on how often a specific bank compounds interest.
2. You may make irregular deposits to or withdrawals from your savings account throughout the year that accelerate or slow growth.
3. APYs will likely change at least once throughout the year.

Your best bet is to use a high-yield savings account calculator to understand how much money you could potentially earn from a specific bank account, but understand that things can and will change over time.

HYSA pros and cons

High-yield savings accounts offer major benefits (and I firmly believe everyone should take advantage of them), but there are some drawbacks to note as well.

Pros

• Insured funds and low risk

  HYSAs are generally insured up to $250,000. They’re also not subject to volatile changes like stocks and real estate investments.

• Higher interest rates

  The main draw of a high-yield savings account is that it earns much more interest than a traditional savings account.

• More liquidity than other investments

  Money in a savings account is relatively liquid, compared to other investments such as certificates of deposit (CDs), stocks, bonds, and real estate. You can generally transfer funds to a linked checking account at the same bank instantly or to another bank in a day or two.

• Organized savings goals

  Many banks allow you to organize your savings into sub accounts, which can help you visualize savings for specific goals, such as an emergency fund, vacation, wedding, or house down payment.

• Low or no fees

  Online banks typically offer high-yield savings accounts with low or no fees.

If you don’t plan to touch the money in your HYSA for a while, you might want to check out our list of the best CDs with the highest rates.

Cons

• Slower growth than other investments

  While HYSAs grow faster than traditional savings accounts, they can’t match the growth of the stock market. (Conventional wisdom says you can expect 10% growth in the stock market, but this is over time; its volatility means you could see big ups and big downs in the short term.)

• Less liquidity than checking accounts or cash

  You can spend money directly from a checking account or with cash in your wallet. A savings account is not designed for spending; when you need money from savings to cover a big expense, you’ll need to transfer funds or withdraw money at an ATM.

• Potential transfer limits

  In 2020, the Federal Reserve Board eliminated Regulation D, which capped transfers from savings accounts to six per month. Today, many banks allow you to make as many transfers as you’d like. (I can’t tell you how many money moves I make with my Capital One account in a typical month, but man, am I glad Reg D is gone!) Some banks, however, may still limit transfers to six per month; always read the fine print before opening an account.

• Potential fees and minimum balance requirements

  Some high-yield savings accounts may charge fees (the best ones don’t!) and may have minimum balance requirements. While a minimum balance requirement of $5 isn’t a big deal, some banks may have much larger balance requirements to earn the highest APY.

Should you open a high-yield savings account?

Everyone should open a high-yield savings account, if eligible. It’s the best way to establish and grow an emergency fund, and it makes it easier to save for other shorter-term goals, such as a vacation, home improvements, a wedding, a house down payment, or starting a family.

Through financial planning, we help clients determine an adequate emergency fund (typically three to six months of expenses) and plan for future cash needs.
We often recommend “bucketing” cash based on timing: Use a high-yield savings account (HYSA) for short-term funds you may need within one to three months, since these accounts are liquid and pay higher rates than traditional banks.
For funds needed later, consider short-term Treasurys or CDs, which can offer higher yields. We continually review client cash reserves to balance liquidity, return, and tax efficiency for their specific goals.

Once you’ve built a solid foundation in a HYSA and paid down your outstanding debts, it makes sense to diversify your investments in stocks and bonds. (I also recommend maxing out 401(k) and IRA contributions first, though.)

To get started, check out several of our picks for the best high-yield savings accounts below, or see our full list here.

If you’ve had trouble with banks in the past, like if your account has been closed because of inactivity or too many overdrafts, you may have trouble opening a high-yield savings account for now. Instead, focus on these best second-chance bank accounts, and after you’ve established good banking habits, you may be able to open a HYSA down the line.