A high-yield savings account (HYSA) offers much higher interest rates than traditional savings accounts, often several times the national average. These accounts help savings grow faster through competitive annual percentage yields (APY). They remain FDIC-insured up to $250,000 per depositor, providing security similar to regular savings accounts.
How It Works
Deposits earn compound interest, calculated on the principal plus accumulated interest, typically daily, monthly, or quarterly. Banks credit interest periodically based on the APY, which reflects both the base rate and compounding frequency. Funds stay liquid for withdrawals or transfers, though some limit transactions to six per month.
Key Benefits
- Higher returns: APYs often exceed 4%, far above traditional accounts' 0.01%-0.62%.
- Accessibility: No penalties for needed withdrawals, ideal for emergencies or short-term goals like vacations or down payments.
- Low risk: Protected by FDIC insurance with no market volatility.
Considerations
Rates fluctuate with Federal Reserve policies and bank competition, so compare options from online banks with lower overhead. Minimum balances or transaction limits may apply, but no long-term lockups like CDs.