What is a High Yield Savings account?

A high yield savings account is a type of savings account that typically offers a higher interest rate than a traditional savings account. These accounts are often offered by online banks or other financial institutions that specialize in providing higher interest rates on deposits. They typically can provide higher interest rates because they are offered by online banks or other financial institutions that operate with lower overhead costs compared to brick-and-motor banks.

Since online banks don’t have to maintain physical branches, they have lower operating costs, which allows them to pass on some of the savings to their customers in the form of higher interest rates. In addition, many high yield savings accounts may have fewer fees and charges than traditional savings accounts, further contributing to the higher interest rates.

Banks may also use high yield savings account as a way to attract and retain customers. By offering a higher interest rate, they may be able to entice customers to open and maintain accounts with their institution.

High yield savings accounts can be a good option for people who want to earn a higher rate of interest on their savings while still having easy access to their funds. They may also be a good choice for people who are looking for a safe and low-risk way to save money, as these accounts are generally FDIC-insured up to $250,000 per depositor.

There are several online banks that offer high yield savings account with competitive interest rates. I currently bank with Ally Bank. They offer a high yield savings account with no minimum balance requirements or monthly maintenance fees, and currently offers one of the highest interest rates at 3.40%, at the time this written, compared to the brick-and-mortar banks with a national average of 0.05%.

However, it’s important to note that the interest rate on a high yield savings account is not fixed and can fluctuate over time based on market conditions. It’s also important to read the terms and conditions of any high yield savings account carefully to understand any restrictions, fees, or minimum balance requirements.

In conclusion, a high yield savings account can be an excellent option for those looking to grow their savings without taking on too much risk. With higher interest rates and fewer fees than traditional savings accounts, these accounts can help you reach your financial goals faster while still providing easy access to your money. Whether you're saving for a down payment on a home, an emergency fund, or a big purchase, a high yield savings account can be an important tool in your financial toolkit. By choosing a reputable online bank with a competitive interest rate, you can take advantage of the benefits of a high yield savings account while keeping your money safe and secure.

Link to the best high yield savings account: https://www.nerdwallet.com/best/banking/high-yield-online-savings-accounts