What Are High-Yield Savings Accounts, and Are They Worth It?

What is a high-yield savings account?

How high-yield savings accounts work

High-yield savings accounts generate earnings based on three things: your balance, the interest rate and how often the interest compounds. Most banks calculate interest daily and pay it monthly. The more frequently interest compounds, the faster your savings grow.

Here’s an example: If you deposit $10,000 into a high-yield savings account earning 4.50% APY, you’d earn about $450 in interest after one year. With a traditional savings account earning 0.25% APY, you’d earn only $25 over that same period.

In this example, the $425 difference is significant—and can become even more so as balances and interest build over time.

It’s important to note that APYs can change at any time. Savings account rates are variable and often move up or down in response to changes in the Federal Reserve’s federal funds rate. When interest rates rise, your savings can earn more; when they fall, your earnings may decrease.

Advantages of a high-yield savings account

High-yield savings accounts combine safety, flexibility and growth potential. Here are a few reasons a high-yield savings account can be a wise choice for you:

1. Earn higher returns with minimal risk

Unlike investments that can fluctuate in value, savings accounts keep your principal safe while offering steady interest earnings. A higher APY means you can make progress toward your goals faster, without taking on the additional risk present in investments like stocks.

2. FDIC insurance protection

High-yield savings accounts offered by FDIC-insured institutions, like Associated Bank, protect your money up to $250,000 per depositor, per account category. In practice, this means that even if your bank were to close, your money would still be secure up to the protected amount.

3. Easy access to your money

Most accounts can be managed online or through digital banking. This allows the transfer of funds to and from your checking account, set up automatic savings and move money toward your goals at any time.

4. Useful for emergency funds and short-term goals

Financial experts recommend keeping three to six months of expenses in an emergency fund. A high-yield savings account can be a good place to keep that fund, as it’s accessible when you need it and earns interest while you don’t.

It can also be ideal for short-term savings goals like vacation funds, home repairs or upcoming tuition payments. High-yield savings accounts allow your balance to grow faster than it would in a traditional account, passively earning interest and moving you closer towards your goals.

Potential drawbacks to consider for high-yield savings accounts

While high-yield savings accounts have many benefits, they’re not always the best account type for every situation. Here are a few of the top considerations to keep in mind before opening a high-yield savings account:

1. Variable interest rates

Because interest rates can change at any time in response to market conditions, this means your earnings may also fluctuate as a result. When market rates fall, your account’s APY can follow. It’s smart to compare rates periodically and make sure your account remains competitive in changing market conditions.

2. Limited transactions

Federal Regulation D previously limited certain savings withdrawals or transfers to six per month. While this has shifted in recent times, some banks will still limit how often you can move money. These limitations typically allow only electronic transfers to a linked checking account. If you plan to move money frequently, make sure the account type you choose allows the ability to transfer funds as needed.

3. Minimum balance requirements

Some high-yield savings accounts require a certain balance to earn the highest APY. Falling below that amount could reduce your rate or trigger maintenance fees depending on the institution and account type. Ensure to always review the fine print on the minimum balance requirements before opening an account.

4. Online-only access

Many high-yielding accounts are offered by digital-only banks. That can mean limited in-person service or longer transfer times. If you prefer visiting a branch in-person, look for a bank that offers both strong rates and local support.

How to choose the right account

Not all high-yield savings accounts are created equal. Here’s what to look for when comparing your options:

• Compare APYs and fees: A higher APY can make a big difference over time, but fees can quickly offset your earnings. Look for an account with no monthly maintenance fees, and aim for an APY that ranks above the national average.
• Check for FDIC insurance: Always confirm that the institution is FDIC-insured. This protection covers up to $250,000 per depositor, per ownership category, providing assurance that your funds are safe.
• Understand access and digital features: Consider how you’ll use the savings account. Will you transfer funds online, use a mobile app or do you prefer in-person branch access? Make sure the account fits your lifestyle and offers any necessary tools such as mobile check deposit, account alerts or automatic transfers.
• Review compounding frequency: Interest that compounds daily earns slightly more than monthly or quarterly compounding. While the difference may seem small, a higher compounding frequency can add up over time to make a considerable difference.
• Consider linked account options: If you already have a checking account, opening a linked savings account can make transfers simple and quick. Associated Bank makes it easy to move money between accounts, automate deposits and track your progress toward your goals.

When does a high-yield savings account make sense?

High-yield savings accounts work best for short- or medium-term goals where safety and liquidity matter more than long-term growth. Examples may include:

• Emergency funds: money you might need quickly
• Big-ticket purchases: vacations, appliances or home projects
• Down payments: saving for a car or house
• Tuition or education savings: funds you’ll need in a few years

If your savings timeline is longer (five years or more), you may want to consider other options like certificates of deposit (CDs), money market accounts or investments that offer greater potential returns (typically with some added risk).

The key is balance: keeping enough money in a high-yield savings account to cover near-term needs while investing the rest for long-term goals.

High-yield savings vs. other account types

You might wonder how high-yield savings accounts compare to other popular options. Here’s how they differ:

High-yield savings vs. regular savings

A standard savings account typically earns less than 1% APY. High-yield accounts can offer APYs that are significantly higher. Both provide liquidity and FDIC insurance, but high-yield accounts help your balance grow faster.

High-yield savings vs. money market accounts

Money market accounts often combine features of savings and checking accounts. They may include check-writing privileges or debit cards but can require higher minimum balances. Rates are usually similar, with money market accounts typically seeing slightly lower rates, so your choice may depend on how often you need access to your money.

High-yield savings vs. certificates of deposit (CDs)

CDs generally offer fixed rates for a set period—ranging from a few months to several years. They can provide higher guaranteed returns but lock up your funds until maturity. A high-yield savings account keeps your money accessible if your plans change.

If you’re comparing these options, think about when you’ll need the money and how much flexibility matters to you.

Tax considerations for high-yield savings accounts

Interest earned on a high-yield savings account is taxable as ordinary income. Your bank will issue a Form 1099-INT if you earn $10 or more in interest during the year. You’ll report that income when you file your taxes.

Even though the earnings can be modest compared to investments, they’re still subject to income tax. Planning ahead will help you avoid any surprises when it’s time to file your taxes.

Tips to maximize your earnings

Automating your deposits is one of the easiest ways to grow your savings. Setting up recurring transfers from your checking account to your savings helps build your balance over time—small, consistent contributions really do add up.

It’s also smart to keep an eye on rates. If market rates rise, compare APYs to make sure your account remains competitive.

Avoid unnecessary withdrawals so your balance can grow through the power of compound interest. Leave the funds in your account unless you truly need them.

Finally, take advantage of goal-based tools to track progress toward your specific savings goals.

Are high-yield savings accounts worth it?

For most people, yes. A high-yield savings account offers a safe and flexible way to grow your money faster than a traditional account. It’s especially valuable if you’re building an emergency fund or saving for goals within the next few years.

This does not mean high-yield savings accounts are a replacement for long-term investments. Due to variable rates and typically lower than market returns, high-yield savings accounts are best viewed as part of a balanced financial strategy.

When you understand how high-yield savings accounts work and how to use them strategically, you can make your money work harder for you.

Next steps

If you’re ready to make your savings work harder, explore your options at Associated Bank. Your goals deserve to grow—and with the right account, they can.

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