What’s a High-Yield Savings Account, and How Do They Help?

Somewhere along the way, our expectations for what a savings account could offer us changed. At one point, you could count on whatever balance you kept in a standard savings account to earn a modest return each month. Now, however, many basic savings accounts feature rates well below 1.00% (the national average is 0.64%²), and that’s left many consumers viewing a saving account as a place to store money and nothing more.

Well, there’s good news: you can expect more than that from your savings account. There are still ways to earn more with your savings each month, if you know where to look—and one of the best examples is a high-yield savings account.

What is a High-Yield Savings Account (HYSA)?

A HYSA does exactly what you might suspect based on its’ name: it provides higher yields, i.e. higher earnings on your deposits, than your standard savings account. Rates typically sit between 3.5% to 4%², well above that 0.64% national average for a standard savings account. Over the course of a year, that difference can be significant. Assuming a deposit of $1,000 for 365 days, compounding daily, you would earn:

• $6.42 with a standard savings account with an Annual Percentage Yield of 0.64%.
• $35.62 with a HYSA with an Annual Percentage Yield of 3.50%

That’s no joke—and the more you put away in your savings account, the more you’ll earn. A HYSA can turn your emergency fund or rainy-day savings into something that earns you peace of mind and extra cash. There’s probably a specific question on your mind: what’s the catch?

What Do I Need to Know About HYSAs?

There are a few key features you need to know about HYSAs. While they do provide better return on your savings, they often require a little more effort to qualify for their superior rate.

• Qualification Requirements: Many institutions have certain requirements that must be met to qualify for the higher HYSA rate. Requirements vary, but often include things like a minimum monthly transaction count or setting up direct deposit with that institution.
• No Set Term, Easy Access: You may be familiar with Share Certificates, which are a kind of savings account that offers a higher rate in exchange for committing your funds to that account for a set period. Withdrawing funds before your term finishes can often incur heavy penalties or the forfeiture of any dividends you’ve earned up to that point, while HYSAs keep your funds accessible, without restriction.
• Balance Minimums and Maximums: Some institutions require a minimum balance (sometimes across your entire portfolio of accounts with them) to qualify for a HYSA’s rate, so making sure you have enough to meet that requirement is important. More commonly, institutions will set a limit on the size of balances they’ll pay dividends on; for example, if an institution has a dividend limit of $75,000 on a HYSA that pays 4.00%, they’ll honor that rate for up to $75,000, with any additional funds on deposit in the account earning a lower rate around that of a standard savings account. You’re free to have more on deposit, but only that first $75,000 will earn the higher rate.

Congratulations: now you’re familiar with the ins-and-outs of HYSAs, so go out there and get saving! But before you go, did you know that Sun Federal offers our own version of a HYSA, Kasasa Saver? Check it out on our Savings page to learn more about opening yours and becoming a Sun Federal member today!