High-yield savings account

Also called HYSA

A savings account that pays a much higher interest rate than a typical bank savings account, most often offered by online banks and credit unions.

What it means

A high-yield savings account works like an ordinary savings account but pays a noticeably higher APY, often many times the national average. These accounts are common at online banks, which keep costs low, and at some credit unions. Rates are variable and tend to rise and fall with the Federal Reserve’s policy rate.

As long as the institution is insured, the account carries the same FDIC or NCUA protection as any other deposit account. The main tradeoffs are that transfers to and from an external checking account can take a business day or more, and advertised rates may require a minimum balance or apply only for a promotional period.

Example

For example, $15,000 in an account paying 4% APY earns about $600 in a year, while the same balance at 0.5% APY earns about $75. Rates change over time, so these figures are only illustrations.

How it’s used

Holding an emergency fund
Saving for a down payment or other near-term goal
Parking cash between other uses

Strengths and weaknesses

Strengths

Much higher interest than standard savings
Federally insured with no market risk
Usually low or no fees

Weaknesses

Rates are variable and can drop
Transfers can take a day or more
Often no branch access

Good to know

Check whether the top rate depends on a balance tier or an introductory period.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.