What is a High-Interest Savings Account and Why Should You Care?

by | Aug 5, 2019

Maybe you want to break up with your existing bank or you’re trying to figure out where you can park your cash while still being able to earn some semblance of an interest rate.

We don’t blame you — the national average for savings accounts is an appalling 0.10%. Effectively you’re earning pennies for hundreds to thousands of dollars you’ll be stashing away. If you’re setting aside money for an emergency fund or a short-saving goal (like a house down payment) it’s a good idea to put it in a high-interest savings account so you can at least earn something, right?


So what exactly is a high-interest savings account? Well, keep reading my friend and learn why this product could be your new BFF.


Gimme The Deets


You may have seen ads high-yield savings accounts or high-interest savings account (psstt…they’re the same thing) and are left scratching your head. It’s simple: these bank accounts work pretty much the same as a regular savings account except that they offer a higher interest rate. We’re talking about a pretty big difference here — aka you can earn a lot more than mere pennies, or 0.10%.

Yup, you read that right. Some of these savings accounts can be at a minimum 2.00% which is pretty darn awesome if you ask me.

Most of these accounts are with online-only banks, who charge minimal fees for their high-interest savings accounts to help you keep more of that precious cash. As in, there are typically no monthly fees, no minimums to worry about, and many services (like certified checks) are free. 


Just How Much Can I Earn?


We’re not talking a gazillion dollars (I wish!), but the difference is enough to make a significant difference.

For example, you saved your butt off for an emergency fund and now you have $3,000 to stash away somewhere. First of all, pat on the back for such an amazing job saving.

Now, let’s look at how much you could earn in interest over the span of 12 months:

  • Regular savings account (assuming 0.10% interest rate) – $3,003
  • High-interest savings account (assuming 2.00% interest rate) – $3,061

That’s a $58 dollar difference right there! And the above calculations assume you haven’t made any additional deposits over those 12 months. Imagine if you did, or you started out with a higher deposit amount! 


Again, it’s not a major amount of money, but it’s still pretty good for letting your money just sit there.


Are These Accounts Safe?


Yes, as long as your high-interest savings account is insured (most bank accounts are). If the account is with a bank, it could be insured through the FDIC (Federal Deposit Insurance Corporation) for up to $250,000 per financial institution. Or if it’s a credit union, it could be insured by the NCUA (National Credit Union Administration), also for up to $250,000 per financial institution. 

In other words, your money is pretty safe as long as it’s housed in a financial institution that’s insured by one of the above places. 


Anything Else I Need to Know?



Not all high-interest savings accounts are the same. From interest rates to different features, it’s a good idea to compare your options so that you can choose the best one for your needs.


Here are some questions to think about as you’re doing your research:

  • What fees am I willing (or not willing) to pay (here’s a calculator to help you figure it out)?
  • How quickly do I want to get access to cash?
  • What’s the interest rate for this account, and does it change depending on my deposit amount?
  • What kind of customer service access do I want (e.g. phone, text, email etc.)?

While we’re at it, here are some terms you might come across:

  • Monthly maintenance fees: this is a monthly fee you pay to keep, or “maintain” your account. In many cases it’s free or you have to have a certain balance in the account or else you’ll be charged.
  • APY: Also known as annual percentage yield, or the amount of interest you’ll earn. It’s expressed as a percentage.
  • ACH transfer: This is another term which means online transfers — when you move money between banks and credit unions. Other transfer options include mobile check deposit or withdrawals via the ATM.

Oh, one more thing: since you’re earning real dollars in a high-interest savings account, the IRS does count that as taxable income. You’ll only be taxed if you earn more than $10 in a calendar year and our bank will send you either Form 1099-INT or 1099-OID so you can use it to do your taxes. Even if you don’t get the form, you need to report the interest you earned.


What Are the Pros and Cons of One of These Accounts?


Good question, because a high-interest savings account isn’t for everyone.

Here are some pros and cons:

  • Pro: it’s convenient because you can access your account 24/7 or via a mobile app if the bank offers one. You can do pretty much all your transactions online so you don’t need to bother driving to a physical location and waiting in line.
  • Con: High-interest savings accounts may not have as many features as other types of accounts but that depends on who you go with. For example, you may not get ATM access or mobile deposit.
  • Pro: You can typically earn a higher interest rate compared to regular savings accounts. 
  • Con: Many online savings accounts only offer ACH transfers, which means it could take you a few days to be able to get your money.


You can’t go wrong with a high-interest savings account if you want to earn more money than a regular account. Being the savvy person you are, educate yourself on how one of these accounts can work with your finances before biting the bullet.


Share This