What Is a High-Yield Savings Account?

A high-yield savings account (HYSA) is a savings account that pays a significantly higher interest rate than traditional bank savings accounts. While a typical savings account at a large national bank might pay 0.01% to 0.10% APY, a HYSA can pay 10 to 50 times more.

HYSAs are typically offered by online banks, which operate without physical branch networks. Because these banks have lower overhead costs, they can afford to pass those savings on to customers in the form of higher interest rates.

When you deposit money into a HYSA, the bank pays you interest on your balance. This interest accrues daily or monthly and is typically credited to your account on a monthly basis. Over time, you earn interest on your original deposit plus previously earned interest — a process called compounding.

• •FDIC insured — Your deposits are protected up to $250,000 per depositor, per bank, backed by the full faith and credit of the U.S. government.
• •No lock-up period — Unlike certificates of deposit (CDs), you can withdraw your money at any time without paying an early withdrawal penalty.
• •No monthly fees — Most HYSAs charge zero monthly maintenance fees, which means every dollar you deposit stays working for you.
• •Interest compounds — Your earned interest gets added to your balance, and then that larger balance earns interest in the next period. This compounding effect accelerates your earnings over time.

You'll often see two numbers when comparing savings accounts: the interest rate (also called the nominal rate) and the APY (Annual Percentage Yield). While they sound similar, there's an important difference.

The interest rate is the base rate the bank pays on your deposit. The APY includes the effect of compounding — that is, the interest you earn on top of previously earned interest. Because of compounding, the APY is always equal to or slightly higher than the nominal interest rate.

Daily vs monthly compounding: Some banks compound interest daily while others compound monthly. Daily compounding produces a slightly higher effective yield, but the difference is minimal. For example, on $10,000 at a 4.50% nominal rate, daily compounding yields about $460.25 versus $459.34 with monthly compounding — a difference of less than a dollar per year.

The biggest difference between a high-yield savings account and a traditional savings account is the interest rate. Here's how they compare:

One of the most important things to understand about HYSAs is that your money is safe. The Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks up to $250,000 per depositor, per bank. This coverage is backed by the full faith and credit of the United States government.

This means that even if the bank fails or goes out of business, you will not lose your insured deposits. The FDIC has never failed to protect insured deposits since it was established in 1933.

If you have more than $250,000 to save, you can spread your deposits across multiple FDIC-insured banks to keep the full amount protected. Each bank provides a separate $250,000 of coverage.

Read our full guide to FDIC insurance →

A high-yield savings account is a good fit for anyone who wants to earn a competitive return on their cash without taking on market risk. HYSAs are particularly well-suited for:

• •Emergency fund savings — Keep 3 to 6 months of living expenses in a HYSA where it's easily accessible and earning interest.
• •Short-term savings goals — Saving for a vacation, a wedding, or a major purchase within the next 1 to 3 years? A HYSA lets your money grow without the volatility of the stock market.
• •Down payment savings — Building toward a home purchase? A HYSA keeps your down payment safe and earning interest while you save.
• •Anyone wanting safe returns — If you want your cash to work harder without any risk to your principal, a HYSA is one of the simplest and safest options available.

Opening a high-yield savings account is straightforward and can usually be done entirely online in under 10 minutes. Here's how:

1. 1.Research and compare rates — Use our HYSA comparison page to find the best rates available. Look at APY, minimum deposit requirements, fees, and any special features.
2. 2.Apply online — Visit the bank's website and complete the application. You'll typically need your Social Security number, a valid ID, and your contact information.
3. 3.Fund with an initial deposit — Link an existing bank account and transfer your initial deposit. Some banks require a minimum deposit (often as low as $0 or $1), while others have no minimum at all.
4. 4.Set up automatic transfers — Schedule recurring transfers from your checking account to build your savings consistently. Even small regular deposits add up over time thanks to compounding interest.