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High-yield savings vs. traditional savings account: Why it’s still worth the switch
The Federal Reserve measured out a second rate cut of 2024 on Nov. 7, two months after a jumbo half-point cut that put savings and other deposit accounts back in the spotlight with this question: Is it the end of high rates for savers?
Not necessarily. The fact is that high-yield savings accounts earn a much higher interest rate than traditional savings accounts — we’re talking 10 to 20 times more. That extra money can go a long way in padding your retirement savings or meeting short-term financial goals.
But you might wonder if there’s a catch for the APYs advertised for these types of accounts, and maybe even hesitate to move your money from a traditional savings account. If you’re reluctant to switch banks, here's how to compare a high-yield account to a traditional savings account. It just might give you the nudge you need to start earning more, faster.
Must read: I tracked my high-yield account through 2024 Fed rate cuts — here's why it's worth keeping
What is a high-yield savings account?
A high-yield savings account is like a high-powered savings account. It earns a much higher interest rate with fewer fees than you’ll find with a traditional savings account, helping your money to grow faster.
You can typically find HYSAs at online banks and credit unions — not physical institutions like Bank of America or Wells Fargo. But your money is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), just like at your current bank. So you can earn more without any extra risk. (And you can even confirm that your bank is FDIC-insured on your own for peace of mind.)
There’s no catch: The biggest reason online banks can afford to pay more interest and charge fewer fees is that they operate within a smaller footprint. They’re not paying to staff and manage thousands of branch locations. The bulk of your banking is online, which slashes the bank’s operating costs. In exchange, online banks can pass their savings on to you in the form of fewer fees and stronger interest rates than your typical bank.
Dig deeper: How much should you keep in a high-yield savings account?
High-yield savings vs. traditional savings accounts: What to know
HYSAs compare to traditional accounts in key ways beyond higher interest rates. Let’s take a closer look at how high-yield savings accounts compare to traditional accounts.
Interest rates
The biggest advantage of a high-yield savings account is in its name: It earns a higher yield on your savings balance. Today's HYSAs earn 4.00% APY or more, which is up to 10 times higher than the national 0.43% average of traditional savings accounts. For example, SoFi offers an FDIC-insured savings account that pays out up to 4.00% APY, with an additional 0.50% APY if you sign up for checking.
But here’s the kicker: Chase, the largest bank in the U.S., pays a mere 0.01% APY for its basic Chase Savings account. This is 400 times less than most HYSAs, and much lower than the national average. It’s like earning a single penny per year for every $100 saved.
To put this into perspective, let’s say you keep $20,000 in your savings account as an emergency fund:
If you deposited that $20,000 into a basic Chase Savings account offering 0.01% APY, you'd earn a mere $2 at the end of your first year and only about $20 after 10 years, not accounting for compounding interest.
If you deposited that same $20,000 into a high-yield savings account offering 4.00% APY, you'd earn about $800 at the end of your first year and some $9,600 after 10 years. With compounding, the actual numbers would be higher.
As you can see, not keeping your savings in a high-yield account is like robbing yourself of a lot of free money. Imagine having more than $9,000 extra in your savings account just by doing one simple thing: switching to a high-yield savings account. And with many of today’s best HYSAs offering more than 4.00% APY, the switch is a low-effort task with a huge reward.
Minimum balance requirements and fees
HYSAs are also a clear winner when it comes to fees. Most have no minimum balance requirements and charge little to no fees for maintaining your account. You can open your high-yield account with any amount of money and not worry about penalties.
Compare that to traditional savings accounts, which require you to maintain a specific balance to avoid monthly maintenance fees as high as $25 or more. You’re essentially paying the bank to hold your money for you — which is a big red flag for savers.
Accessibility and convenience
Nearly every bank supports a mobile app these days. So no matter if you go HYSA or traditional, you’re able to manage your account and your money from your computer, tablet or phone — including mobile check deposits, which use the camera on your phone to deposit checks into your account.
Traditional savings accounts do have the advantage of in-person support and the ability to accept cash deposits. But unless you're regularly depositing cash, an HYSA's higher interest rates may outweigh this drawback.
Plus, many HYSAs offer 24/7 customer support, so help is a call or chat away, even if you can’t pop by a branch.
Setting up and managing your money
HYSAs and traditional accounts are neck and neck for ease of setting up and managing your accounts.
You can open a high-yield savings account from the comfort of your couch by completing a form on the bank's site, and — voila! — your new savings account is ready to go. Plus, you can easily link your HYSA to your existing checking or savings accounts for seamless transfers.
Traditional savings accounts may also offer the option to set up your account online in addition to in-person signup at a physical branch. But if you go in person, you’ll need to make sure you visit during regular branch hours, which usually aren’t on the weekends.
Dig deeper: How to find and open a high-yield savings account
High-yield savings vs. traditional savings account: How they compare
A high-yield savings account can be a profitable place to store your savings and earn the highest interest possible without fees or minimum balance requirements that can eat into your earnings. These accounts are ideal for large balances and emergency funds, though you’ll need to be comfortable with online or digital banking without in-person support unless your account is with a hybrid bank, like Capital One.
Traditional savings accounts support in-person banking, including withdrawals and deposits at your local branch. If you prefer to chat face-to-face with a teller or keep your savings, checking and other accounts under one roof, it might be a better fit than a digital account — even if the trade-off for brick-and-mortar banking is a significantly lower earning potential.
Here are other ways these two accounts compare to help you find the best fit with your budget, balance and way you like to bank.
High-yield savings account | Traditional savings account | |
Interest rates | High rates of return on your savings balance — up to 10 times that of a traditional savings account — to grow your savings faster | Low or no rates of return on your balance — a missed opportunity for savers |
Minimums and fees | Low or no opening deposits and minimum balances for most accounts | Fees vary by bank but might include monthly maintenance charges and fees for insufficient balances — which can eat into the meager interest you earn |
Deposit insurance | FDIC-insured for up to $250,000 per person, per account type | FDIC-insured for up to $250,000 per person, per account type |
Mobile banking | State-of-the-art mobile apps and online banking portals to manage your money from anywhere, with some apps including budgeting tools, goal trackers and other perks | Big banks and credit unions support apps and online banking, but apps from small or regional banks may be less robust |
Customer support | 24/7 customer support by phone, email or live chat, with hybrid banks like Capital One allowing limited in-person support at your local branch | In-person support available at physical bank branches as well as by phone, email or live chat, depending on the bank |
Full-service banking | Online banks can be a solid place to store your money, but not all offer a wide array of banking products, so you might need a different bank for checking accounts or loans | Big brands offer a range of banking options, allowing you to keep checking, savings, loans and more all under the same bank |
Dig deeper: Can you lose money in a high-yield account? It’s unlikely — but here’s what to watch out for
Alternatives to high-yield and traditional savings accounts
HYSAs and traditional savings accounts aren’t your only options for stashing excess cash. Any or all of these alternatives can complement your overall savings strategy.
High-yield money market accounts
High-yield money market accounts work much like HYSAs, offering higher interest rates of traditional savings accounts. But they come with debit card access and check-writing privileges that HYSAs don’t. So if you want more access to your money than a standard HYSA provides, they could be a good call.
Certificates of deposit
CDs are like savings accounts with a twist: You agree to lock up your money for a set period, usually a few months to a few years, and in exchange, you earn a higher fixed interest rate than your typical savings account.
CDs can be good if you’re saving for short-term goals like an international cruise you’ll take in two years or updates to your home you'll make in three years. Unlike the variable interest rates of savings accounts, interest rates for CDs are fixed, making it easier for you to know exactly how much you’ll earn — and helping you to lock in and benefit from high earning potential even after rates come down. Or stack several terms into a CD ladder that combines high yields with flexible access to your money.
High-yield checking accounts
A high-yield checking account is like high-yield savings in that it offers higher APYs than traditional savings accounts, but it’s also like a more flexible money market account in that it supports unlimited debit and check-writing privileges you won't find with an HYSA.
Investment accounts
Finally, there are investment accounts. Investments carry more risk than savings accounts or CDs because you’re investing your money in the stock market. But they’re also generally better for building long-term wealth.
The best investment platforms can help you dive into active trading or passively grow your retirement funds, with built-in robo-advisors and dollar-cost averaging strategies for smart, hands-off investing. Ideally, you’ll keep some money in savings for emergencies and short-term goals, investing the rest for a happy and comfortable retirement.
Dig deeper: Saving vs. investing: The difference for growing and protecting your wealth
How to find the best high-yield savings account for your needs
Not all FDIC-insured online banks are created equal — some may offer higher interest rates or better user experiences than others. As you shop for the best high-yield savings account, ask yourself questions like:
What interest rate does this account earn? Look for the highest rate you can earn at a bank offering the services you like.
Do I need to do anything to earn this interest rate, like keep a minimum balance? Make sure you can comfortably meet any requirement to earn the highest advertised rate.
What fees does this account have? The best high-yield accounts come with no fees to maintain your account.
What are all the ways I can deposit or withdraw my money? Many HYSAs partner with ATM networks that accept check deposits with apps for convenient mobile deposits.
Don't be afraid to read reviews, ask for recommendations and crunch the numbers to find the best account for your needs. A little legwork now can lead to big savings down the line.
FAQs: High-yield accounts and your financial future
I’ve saved up $10,000. Where’s the best place to put it?
Saving up $10,000 is an impressive milestone that opens up several financial opportunities that can better position you for a more stable financial future. You can put it to work through passive income streams, contribute to growing a retirement fund or pay down high-interest debt. See our guide to the five smartest moves to make with your $10,000.
How much should I keep in an emergency fund?
Most advice suggests your starter fund should be at least $1,000, but you may consider a fund that’s half of your monthly expenses. If you’re gainfully employed — especially if you’re the main breadwinner for the family — the rule of thumb is three to six months’ worth of expenses in an emergency fund that can keep your finances afloat after a job loss. Learn more about how to maintain your rainy-day reserves in our guide to building an emergency fund on any budget.
Is a financial advisor worth it for retirement planning?
Yes. A financial advisor can help you manage your money as you plan for retirement, while giving you a sense of how much you can spend during retirement to make your savings last. Their market expertise may also help maximize your savings. If you’re anxious about retirement, working with an advisor can also give you peace of mind by assuring you that you’re on the right path. Start with our guide to finding a trusted retirement advisor.
Get matched with a trusted financial advisor in 4 simple steps
Sources
National Rates and Rate Caps, FDIC. Accessed November 28, 2024.
About the writer
Cassidy Horton is a finance writer who specializes in banking, insurance, lending and paying down debt. Her expertise has been featured in NerdWallet, Forbes Advisor, MarketWatch, CNN Underscored, USA Today, Money, The Balance and Consumer Affairs, among other top financial publications. Cassidy first became interested in personal finance after paying off $18,000 in debt in 10 months of graduation with an MBA. Today, she's committed to empowering people to stand up and take charge of their financial futures.
Article edited by Kelly Suzan Waggoner
