High-Yield Savings Accounts: Are They Actually Worth It?

For years I kept my savings at a regular bank earning like… 0.01% interest. I\’m not even joking. Zero point zero one percent. On $5,000 that\’s 50 cents a year. Fifty cents.

Then I learned about high-yield savings accounts and felt pretty dumb for waiting so long. Here\’s what I wish I\’d known earlier.

What makes it \”high-yield\”

High-yield savings accounts are just savings accounts that pay way more interest than traditional banks. We\’re talking 4-5% APY right now versus that pathetic 0.01% at big banks.

On that same $5,000, a 4.5% account earns you about $225 a year. That\’s actual money just for… having money sit there. Doing nothing.

According to Bankrate\’s current listings, some accounts are even above 5% right now. Rates change with the economy but these accounts consistently beat traditional banks by a huge margin.

The catch (there\’s always a catch right?)

High-yield savings accounts are usually at online banks. No physical branches. If you like walking into a bank and talking to a person, this isn\’t that.

For me, this was fine. I do everything online anyway. But some people want that in-person option.

Transfers can also take 1-2 business days. So if you need cash immediately, you can\’t just walk in and get it. You\’d transfer to your regular checking account first. For emergency fund purposes this is usually fine – most emergencies can wait a day or two for funds to transfer.

Oh and the rates aren\’t guaranteed. They change. That 4.5% might be 3.5% in six months. But it\’ll still be way better than 0.01%.

Where I keep mine

I\’m not gonna recommend specific banks because they all change their rates constantly and I don\’t want this to be outdated. But the big names you\’ll see mentioned everywhere are Marcus (Goldman Sachs), Ally, Discover, Capital One 360, and a bunch of others.

Check NerdWallet\’s comparison for current rates. I update where I keep my savings maybe once a year based on who\’s offering the best rate at the time.

The differences between the top accounts are usually small – like 4.25% vs 4.35%. Don\’t overthink it. Pick one that\’s reputable and has a rate you\’re happy with.

Is it safe though?

As long as the bank is FDIC insured (and all the legit ones are), your money is protected up to $250,000 per depositor per bank. Same protection as any normal bank.

The online banks aren\’t sketchy just because they don\’t have buildings. They\’re real banks, regulated the same way, with the same protections.

When high-yield makes sense

Emergency fund: This is the perfect use case. You want your emergency fund accessible but not too accessible (like sitting in your checking account where you might spend it). And you want it earning something while it waits.

Saving for a goal: Down payment on a house, car, vacation – anything you\’re saving for in the next 1-5 years. You don\’t want this in the stock market where it could drop right when you need it, but you want it growing.

Cash you don\’t want to invest: Maybe you\’re keeping some money on the sidelines waiting for an opportunity. Or you\’re just not comfortable with your entire net worth in the market. High-yield beats a regular savings account.

When it doesn\’t make sense

Long-term investing: If you\’re investing for retirement 20+ years away, the stock market will almost certainly beat savings account rates over that timeline. Don\’t keep retirement money in savings.

Money you need daily: Your checking account should be at a convenient bank where you can access cash easily, use ATMs, etc. Transfer money to high-yield for savings, keep your spending money somewhere accessible.

My setup

I have checking at a regular bank for daily stuff – getting cash, paying rent, etc. Then I have a high-yield savings at an online bank for my emergency fund and short-term savings goals.

Every paycheck, an automatic transfer moves a set amount from checking to high-yield. I treat it like a bill – the savings happens before I can spend it.

It\’s not complicated. The hardest part is just… doing it. Opening the account takes like 10 minutes online.

Just stop earning 0.01%

Seriously. If your savings account is at a big traditional bank paying basically nothing, you\’re leaving money on the table.

Yes, rates will fluctuate. Yes, high-yield might be 3% instead of 5% next year. It\’s still infinitely better than 0.01%.

Your money is sitting there anyway. Make it work a little harder.