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Editor’s note: The APYs listed in this article are current at the time of publication. They can fluctuate (up or down) when the Fed rate changes. CNBC will update as changes are made public.
If you have a checking account at your local bank, you probably also have a savings account there.
Many people store their money in a savings account to earn interest and watch their money grow over time. But some savings accounts offer a much higher return than others – that’s where high-yield savings accounts come in.
While the national average return of a traditional savings account is only 0.06%, a high yield savings account applies a much higher interest income to your savings.
For this reason, people store their money in a high-yield savings account to reach their goals faster, whether it’s saving for something short-term, like a vacation, or planning to do a big expense later, like a down payment on a house.
Below, CNBC Select examines what high-yield savings accounts are and how they work.
What are High Yield Savings Accounts?
High Yield Savings Accounts differ from traditional savings accounts in that they reward you with a higher interest rate, allowing your money to grow even faster while in your account. .
The interest rate offered by these accounts is denoted APY, or annual percentage yield. The higher your APY on a particular savings account, the faster your money grows.
It is important to note, however, that the APY that savings accounts offer when you sign up can change at any time. These rates are variable and often go up or down as the Federal Reserve changes its benchmark interest rate.
Although the current economic climate has led to lower savings rates lately, the most profitable accounts can still earn you over 16 times more money than regular savings accounts. With the national average APY on savings accounts at just 0.06%, it’s very likely that no matter what your high yield account offers, it will still earn more than a normal savings account. And as the economy recovers and the Fed later raises interest rates, savings account APYs will follow.
Not only does your money earn a better return in a high yield savings account, but you still have access to your money when you need it just like you would in a normal savings account. Your money in a high yield savings account should be federal. insured by the Federal Deposit Insurance Corporation (FDIC), meaning deposits up to $250,000 are protected if the bank were to suddenly collapse.
How High Yield Savings Accounts Work
Compound interest allows your savings to grow quickly in a high-yield savings account.
Compared to simple interest, compound interest means you earn interest on both your principal balance and the interest it earns. With simple interest, it is simply calculated based on your principal or savings balance minus interest.
How often your interest is compounded depends on the savings account. Some compounds daily, while others compound monthly. The more your interest is compounded, the higher your return.
With a High Yield Savings Account, you can withdraw or transfer money (including wire transfers, checks, and wire transfers) from your account up to six times per month without incurring any fees. penalty or risk having your account closed. However, this federal law, known as Regulation D, has been temporarily waived for all savings deposits during the coronavirus outbreak because people need more urgent access to their money.
While a solid APY is an important factor in choosing a high yield savings account, you’ll also want to look at the fine print. Since online banks don’t have the overhead that brick-and-mortar banks have to consider, they can offer a higher APY. But it might come with upfront deposits, minimum balance requirements, and monthly fees, so be sure to read carefully.
CNBC Select ranked our top five, based on the qualifications above, as well as ease of use and account accessibility.
Here are our top picks:
At the end of the line
Before putting all your savings in one place, think about what a high-yield savings account can do for you. When it comes to growing your money over time, choosing an account with a higher yield is a no-brainer.
Information about Marcus by Goldman Sachs High Yield Online Savings, Ally Online Savings Account, Synchrony Bank High Yield Savings, Vio Bank High Yield Online Savings and Varo Savings Account has been independently collected by CNBC and has not been reviewed or provided by the Bank. before publication.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.
