This just in: Not all savings accounts are the same. High-yield savings accounts—or, as you’ll see them abbreviated, HYSAs—are a next-level option for many savers. They can offer you a compelling blend of security and interest earnings at the same time.
But what are high-yield savings accounts, and what do you need to know before opening one? Here’s everything you need to know.
What Is a High-Yield Savings Account?
Think of it like planting a seed in perfectly fertile ground: In your HYSA, your assets will find just the right conditions for quicker, healthier growth.
How exactly do high-yield savings accounts stack up?
Your local financial institution or credit union may have several types of savings vehicles for you to choose from, including certificates of deposit (CDs), money market accounts, savings accounts, and HYSAs.
Here's a quick rundown of the differences between these popular financial products?
Accessibility: HYSAs give you the same access to your money as a regular savings account. CDs, on the other hand, require you to lock in your money for a specific period of time.
Interest rates: High-yield savings accounts offer higher interest rates than regular savings accounts but generally a little lower rates than money market accounts. This higher interest rate allows you to earn more every year on the amount of money you keep in your account.
Risk factors: Much like regular savings accounts and money market accounts, HYSAs are considered safe, low-risk options. (Features like account insurance go a long way toward providing the protection and peace of mind you seek—Credit union accounts are insured for up to $250,000 by the National Credit Union Administration (NCUA).)
If you’re looking for a simple but effective way to grow your savings, it’s worth thinking about a HYSA. And if you’re not yet convinced, we have more information about the benefits you can expect with this type of account.
Illustrating the Many Benefits of a High-Yield Savings Account
Savers who select a HYSA benefit from:
Liquidity: the ability to access your funds when you need them without penalty
Low risk: insured, secure deposits that will grow reliably over time
Flexibility: the ability to make regular deposits, contributions, and withdrawals as you need
All of this means you’re getting a similar experience as a regular, convenient savings account; you’re just making extra money.
But how much extra money?
What's the power of higher interest rates?
Let's take a quick look at your earning potential with a HYSA.
Imagine, for a moment, that you deposit $5,000 into two savings accounts: an HYSA that has an annual percentage yield of 2.5% and a regular savings account with an annual interest rate of 0.5%.
At the beginning of the year, you have $10,000 divided equally between two accounts.
After one year, your HYSA will earn you $125 in interest. Your regular savings account will only earn $25. That’s a $100 difference.
Your specific earning potential will vary depending on the HYSA rates available to you and the amount of money you keep in your account. Still, that money adds up—especially if you can keep your HYSA active for a while.
Are there any downsides to an HYSA?
While HYSAs come with many benefits, they do have various considerations you need to weigh. For example, some high-yield savings accounts come with minimum balance requirements or monthly maintenance fees. Make sure you talk to the team at your credit union or financial institution to understand what you’re committing to when you open this type of account.
How do HYSAs enhance your financial emergency plan?
Since HYSAs help you leverage higher interest rates to earn you more money for the same effort, an HYSA can be extremely helpful for your emergency plan.
After all, think about what an emergency fund is: You’re planning on keeping a substantial amount of money in longer-term savings, but you need that money to be readily available at a moment’s notice. (Pro tip: Your money can be available even more quickly if you have your emergency fund stashed in an account at the same institution as your checking account!)
That sounds like exactly what an HYSA offers, and with the extra money you’ll make yearly with interest, your emergency fund itself will grow incrementally over time. That’s added security and added peace of mind!
Wondering if a High-Yield Savings Account Is Right for You?
If you need a place to stash your savings and are eyeing an HYSA but wondering if now’s a good time for you to open this type of account, here’s a quick list of specific times and situations in which HYSAs are generally a good option:
- For long-term savings goals where growth is important and you still require access to your funds
- During periods of interest rate hikes
- If you’re looking to diversify your savings strategies
- If you want to start saving without the restrictions of a CD
When you’re ready to learn more about opening your HYSA, talk to the team at iQ Credit Union. We’re here to help you choose the right savings account based on your financial goals. If you’re interested in learning more, check out our Ultimate Guide to Simple Savings.