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What Is A High-Yield Savings Account? 5 Steps To Open One

Written by Paul Esajian

A savings account is a convenient way to stash away money for short-term savings or to keep an emergency fund. But savings accounts are notorious for their low yields. By the time you account for the cost of inflation, you’ll generally be losing value, and that’s no way to save for your future!

You don’t have to settle for the basic savings account available at your current bank. There’s a better way. A high-yield account can provide better returns on your money. But what is a high-yield savings account, how does it work, and how do you open one? Here’s everything you need to know.

What Is A High-Yield Savings Account?

A high-yield savings account is exactly what it sounds like. In a nutshell, it’s an account that pays more interest than an ordinary savings account. In some cases, they can pay a lot more. The average high-yield savings account pays anywhere from 20 to 25 times as much interest as an ordinary savings account. That’s a big difference!

These rates usually come from online-only banks. Online banks don’t have to pay for brick-and-mortar locations, tellers, armored car deliveries, or security guards. This saves a lot of overhead, which gets passed on to their customers. You can sometimes find a high-yield account from a conventional bank, but even then, the rates tend to be better with online banks.

Like ordinary savings accounts, high-yield savings accounts at banks are insured by $250,000 from the Federal Deposit Insurance Corporation (FDIC). Accounts at credit unions are insured for the same amount by the National Credit Union Administration (NCUA). If you’re not dealing with a bank or credit union, be careful. Make sure they’ve partnered with a bank or other institution to provide adequate deposit insurance. That way, you’ll be able to recover your funds even if the company goes out of business.

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what is a high yield saving account

How Does a High-Yield Savings Account Work?

A high-yield savings account works much like an ordinary savings account. You deposit money into the account, and over time it gains interest. The main difference is that the interest rate is higher.

That said, most online banks and credit unions don’t offer the same conveniences as traditional banks. For one thing, you won’t have any branch offices to visit, and you won’t be able to make cash deposits. Moreover, most high-yield accounts don’t come with the option for an ATM card. To move money to and from your account, you need to make a wire transfer or sometimes a mobile check deposit.

Who Should Open a High-Yield Savings Account?

You should open high-yield savings account if you’re looking for a place to keep short-term or long-term savings. These accounts are ideal for your emergency fund or saving up for a major purchase like a house or a car.

That said, you won’t have immediate access to your money. You’ll have to wait for a wire transfer, which isn’t always convenient. You’ll also have to go without standard banking features like ATMs and debit cards. And you’ll most likely be juggling accounts at multiple institutions. But there’s no better solution if you want to watch your money grow faster than in an ordinary account.

How To Open A High-Yield Savings Account In 5 Steps

Opening a high-yield savings account can be a bit different from opening an ordinary account. That said, it doesn’t have to be excessively complicated. Here are five steps to opening your high-interest savings account.

1. Find The Best Rates

The most important consideration when choosing a high-yield savings account is the interest rate. Otherwise, you’d just be putting your money in an ordinary savings account. If your existing checking account is at a typical bank, their high-yield savings account rates are probably not great. They’ll likely be only marginally higher than the bank’s standard savings accounts.

Before making any decisions, look at some online banks and credit unions. You’ll be able to access hundreds of options, which simply wasn’t possible before the internet age.

That said, you may be at a bank or credit union that also offers top-tier high-yield savings rates. So don’t count them out, either! You may also prefer the conveniences of a local brick-and-mortar bank, and you may even be willing to accept a lower interest rate to access those conveniences. Even so, it behooves you to call several local banks and find out what they’re offering.

The lesson here is to not make any assumptions. Check out as many rates as possible and see how well you can do. It also helps to run a quick internet search for the highest rates and the market average. This is an easy way to check the market’s temperature in just a few minutes.

2. Choose The Right Institution

When you find the best rates, don’t limit yourself to just one or two financial institutions. Keep a list of the top five, and then dig a bit deeper.

If your current bank is already in your top choices, the decision is a no-brainer. Nothing beats the convenience of using the same bank you already use for your checking account. Hop onto their website and start your application. When your account is open, you’ll be able to reach it through your existing bank app or web portal. And since both accounts are with the same bank, you’ll be able to take advantage of instant transfers between them. As an added benefit, the process will take less time since your bank has already verified your identity and tax information.

In most cases, you aren’t going to be that fortunate. Instead, you’ll have to look at some new banks or credit unions. In this case, you’ll need to think about the same things as any other bank account. Is the interest rate permanent, or is it a promotion? Does it only apply to certain balance amounts, or does it apply no matter what your balance is? Do you need to maintain a particular minimum balance? Are there any fees, and can you avoid them by maintaining a minimum balance? These questions can help you quickly narrow your list to a few top contenders.

If it turns out that some of your best options are credit unions, there’s an additional thing to consider. Credit unions have membership requirements, so you’ll have to make sure you meet them. Many charge a one-time fee when you join, so make sure this is something you’re willing to pay. And many credit unions are only available in one state or a handful of states. Make sure the one you want to join is licensed to operate where you live.

3. Complete The Account Application

Once you’ve chosen a bank or credit union, you’ll need to fill out an application. In most cases, you’ll be able to do this online without going into a physical branch. It should normally only take around 10 minutes, although it can sometimes take longer.

You’ll have to provide various information to your financial institution. This will include basic information like your name, address, and phone number. They’ll also need to collect your Social Security number for tax and Know Your Customer compliance. The application will also include a photo of your driver’s license or other government-issued identification.

In addition, you’ll have to decide whether this is an individual account or a joint account. If you’re opening an account with another person, like your spouse or business partner, they will need to provide their personal information and government-issued photo ID.

This is all you should need for an in-person bank application. If you’re doing an online application, the bank will also need to ask you a series of questions to verify you are who you say you are. These will be information from your credit report that a fraudster would have difficulty learning. Typical questions include previous addresses, debts, and employment information. Just answer the questions honestly, and everything should go smoothly.

Keep in mind that many brick-and-mortar banks no longer offer in-person applications. It’s cheaper to pay for a website to take people’s information than it is to pay for an employee in every branch. All of this is to say that you’ll probably be using a web portal no matter what bank you apply to.

In rare cases, your high-yield savings account application may be denied. When that happens, it’s usually because there was negative information in your ChexSystems record. ChexSystems is a consumer reporting agency that gathers information on bank and credit union customers. Many banks won’t let you open an account if you have a record of bounced checks or unpaid fees.

That said, you may be able to clear things up by paying any unpaid fees. Some banks also offer special accounts for people with unfavorable Chex Systems records. Your interest rate probably won’t be as high, but it’s better than nothing.

what is a high-yield savings account

4. Start Funding Your Account

Once your application has been accepted, you’re ready to start saving. In some cases, you’ll have to set up an electric fund transfer from another account to pay for the minimum deposit. In other cases, there’s either no minimum deposit or you get a grace period after setting up the account to make your first deposit.

A bank transfer is the most common way to make your initial deposit. But some banks and credit unions will provide alternative funding options. You may be able to make a mobile check deposit or send a paper check in the mail. Others allow you to use a credit or debit card. If you’re using a credit card, be very careful! Depending on your card issuer, this could be considered a cash advance and may incur additional interest costs that don’t apply to ordinary charges.

You’ll have to supply your routing and account numbers if you’re using a bank transfer. These can be found at the bottom of your checks. Some applications will take you to a portal where you can verify your login credentials for your bank. This allows them to verify the account and accept the transfer instantly. In other cases, they’ll send one or two deposits of less than a dollar, which will show up in between one and three days. Once you confirm the amounts of the deposits, your account will be verified.

5. Links Your Accounts & Establish Beneficiaries

Even if your bank or credit union doesn’t require you to link another account to your high-yield savings account, it’s probably a good idea to do so as soon as possible. For one thing, the setup process can take a few days, so you’ll want to get a jump on it. For another thing, you’ll almost certainly need to make a bank transfer to withdraw any money.

If you already have multiple bank accounts, it can be a good idea to link them. That way, you can transfer money more freely across your various accounts. You may even link your children’s accounts if you want to be able to send transfers to them.

Another thing you’ll want to do is log into your account and choose beneficiaries. These people will receive your remaining funds in the event of your demise. In a joint account, the entire account balance will go to the surviving partner but will pass to the beneficiary upon both partners’ death. You can also choose secondary beneficiaries who will receive the funds if the primary beneficiary is deceased. For example, many people choose their spouse as the primary beneficiary and name their children as secondary beneficiaries. It’s your money; set whatever beneficiaries you want. But be aware that if you don’t, it will default to whoever receives it under state law.

Finally, you’ll probably want to download your financial institution’s online banking app. The bank app will be free to download, but you’ll need to log into it with your username, password, and other information. In some cases, you can do this immediately after opening your account. In other cases, you’ll have to wait for an email – or snail mail – with your account information. At that point, you’ll be able to provide the information to the app and access your bank account remotely.

If you received an email with this information, make sure your email account is secure. Similarly, if your bank info is on a piece of paper, keep that paper safe! Someone with your name, address, routing number, and account number could potentially steal your money.


If you were only ever familiar with the generic savings account, you might have been asking, “what is a high-yield savings account?” A high-yield savings account is the perfect way to invest in yourself. You can use one to save for expenses like a vacation or a new car, and you can also use one to save your emergency fund. Either way, you’ll get 20 and 25 times the return you’d get with a standard savings account.

Opening a high-yield savings account is easy. You just go online and fill out an application. That said, you’ll need to do some research first. Take the time to find the perfect bank, and you’ll be pleased with your experience.

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