High-Yield Savings Account vs. Regular Savings Account

What Is a High-Yield Savings Account?

A high-yield savings account is exactly what it sounds like: It pays a substantially higher interest rate than a traditional savings account. Because your deposits remain liquid, they can be easily accessed to cover emergency expenses or reallocate your assets.

They're available through banks and credit unions, but the best rates can often be found at online-only banks. If you choose this option, you can access your money through electronic transfers and withdrawals. In some cases, you might also have access to a network of ATMs.

Virtually all high-yield savings accounts from banks are FDIC-insured for up to $250,000 per depositor, insured bank and account category. The National Credit Union Administration offers similar protection.

While interest yields are still relatively low compared to investment accounts, high-yield savings accounts present a low-risk way to accrue interest over time. Interest yields will be especially noticeable for accounts with higher balances.

What Is a Traditional Savings Account?

A traditional savings account also earns interest and provides a holding place for your cash savings. Its accessibility is another key feature. You'll have easy access to your money if you receive an unexpected bill or experience a financial emergency. Unlike checking accounts, savings accounts are not designed for frequent withdrawals.

High-Yield Savings Accounts vs. Traditional Savings Accounts

Both types of savings accounts are offered by banks and credit unions and insured up to the same limits. Below are some other ways they're alike and different.

Interest Rate

The main draw of a high-yield savings account is that you can expect a much higher annual percentage yield (APY). Let's say you have $2,000 in savings. Here's how your money would grow in a high-yield savings account versus a regular savings account:

Maintenance Fees

Monthly maintenance fees are rare but could range from $10 to $15 on a high-yield account (or $5 to $8 on a traditional savings account). If it applies, it will likely be deducted automatically from your account each month. However, some banks will waive the fee if:

• You maintain a minimum balance or
• Link your account to another account at the same bank

Transaction Fees

High-yield and traditional types of savings accounts are intended to hold your cash savings. (Checking accounts are better suited for paying bills and making daily transactions.) Both traditional savings accounts and high-yield accounts typically charge fees if you make more than six electronic transfers or withdrawals in a given billing cycle.

Inactivity Fees

If you don't make any deposits or withdrawals for an extended time (usually six months), you may be charged a monthly inactivity fee. This doesn't apply to most high-yield accounts, but traditional savings accounts may charge anywhere from $5 to $10.

Overdraft Fees

If you authorize a transaction from your account but don't have the funds to cover it, you can expect an overdraft fee. The amount varies from one financial institution to the next but could exceed $30. You might be able to avoid this fee if you link a checking account from the same bank. If your savings account has an insufficient balance, the bank will automatically transfer funds from your linked account.

ATM Fees

If your savings account comes with an ATM card, you may incur fees if you use an out-of-network ATM. (These are ATMs that aren't operated by your financial institution or one of its partners.) This fee may range from $2 to $5 on a high-yield savings account, or $2 to $3.50 on a traditional savings account—and the ATM operator may charge a fee of their own. However, some financial institutions may reimburse you for these charges.

Minimum Opening Deposit

When opening a savings account, you may be required to make a minimum deposit. This isn't the case for many high-yield accounts, but the best interest rate may be reserved for larger deposits. For traditional savings accounts, the minimum opening deposit may be up to $25.

Should I Choose a Traditional Savings Account or a High-Yield Savings Account?

Each one has its own benefits and drawbacks. Consider the following when choosing the right savings account for you.

When to Choose a Traditional Savings Account

This option might make sense if:

• You want fast, easy access to your money. If you already have a checking account at a local bank or credit union, adding a linked savings account can simplify your finances. This allows you to seamlessly transfer funds back and forth as needed.
• You prefer brick-and-mortar banking. Opening a traditional savings account at a local branch can be appealing if you like to do your banking in person. You can pop in whenever you have questions or want to deposit or withdraw funds.
• You prefer better ATM access. Having an account at a large bank means that you'll probably have a wide ATM network, which may be important to you. Online-only banks, on the other hand, may have limited ATMs.

When to Choose a High-Yield Savings Account

A high-yield savings account may be the better option if:

• You want to secure a higher interest rate. APYs on high-yield accounts can be significantly higher than what you'd earn on a traditional savings account. That can help grow your money faster, especially if you have substantial cash savings.
• You're building your emergency fund. The rule of thumb is to save three to six months' worth of expenses in your emergency fund. A high-yield savings account can give you a safe space to earn interest on that money.
• You want a clear line between your savings account and checking account. Opening a high-yield savings account at a different financial institution might help you avoid using that money for impulse purchases. Even if you link your checking account, transfers could take several days to go through.

When to Choose Both

Another option is to have both types of savings accounts. You might consider this if:

• You want a two-tier emergency fund. You might keep a mini emergency fund in a traditional savings account that's linked to your checking account, then hold the bulk of your savings in a high-yield account at another bank.
• You occasionally dip into your savings. You might keep a small rainy day fund in a traditional savings account for unplanned purchases that are outside your regular budget—whether that's a last-minute travel deal or a birthday gift for a friend.

Frequently Asked Questions

The Bottom Line

The biggest difference between high-yield savings and regular savings is your earning power. If you're looking to grow your savings in a low-risk savings account, high-yield accounts are tough to beat. They offer better-than-average rates and provide a safe place to hold your cash. It's also possible to find a high-yield savings account with no fees or minimum opening deposit. However, you might still use a traditional savings account for extra liquidity.