What is a high yield savings account?
A high yield savings account (HYSA) is a savings account that offers about 4x the interest that a basic savings account would offer.
The reason they can offer higher interest is related to the fact that many of these banks do not have physical locations so they can afford to pay out higher interest.
Why you might consider having a high yield savings account:
- To earn higher interest
- To use for an emergency fund
Things to consider when searching for the right high yield savings account:
- Interest rate (APY) – this is the percentage that you earn on the balance in your account.
- Minimum balance – this is the minimum balance you must maintain in the account.
- Minimum deposit – this is the minimum amount you have to deposit into the account.
- Transfer fees – these are fees that you may receive from transferring money out of the account.
- Fees in general – these can be fees for not meeting minimum balances, monthly service fees, overdraft etc.
- Insured by the FDIC or NUCA. – The Federal Deposit Insurance Corporation is one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the National Credit Union Administration, which regulates and insures credit unions.
Ideally you would find a high yield saving account that has no yearly fees, no transfer balance free, a high interest rate, FDIC or NUCA insured, no minimum balance and or no minimum deposit. That is why it is important to take adequate time to research the right high yield saving account for you.
Note that the APY changes from time to time. When I first opened mine up, the rate was 1.25%. Then after a few months when the economy was not doing too well, the rate went down to .90%. It fluctuates, and that is okay because it will still be higher than the average APY.
Below are comparisons of the interest I received in my HYSA vs basic savings account.
Above shows the interest that I was paid in my high yield savings account.
And this is what I was paid in my basic savings account.
I was paid $2.93 more in my high yield. This is just to show you how much more you can make in your high yield savings account.
How to choose the best high yield savings account for you?
How much money should I put into my HYSA?
You can put as much as you would like, although my suggestion is to put three to six months worth of monthly expenses into your HYSA. Essentially, put your emergency fund in this account. Anything beyond three to six months worth of savings should go towards retirement.
I did a poll and asked the budget-advisor community what HYSA they suggested and here were the results:
- Ally – this was by far the most popular one in the poll.
- Discover – this was the second most popular in the poll.
- American Express
- Tellus App
So before choosing one of these, make sure to adequate research!