A high-yield savings account (HYSA) is a savings account that pays a significantly higher interest rate than a traditional bank savings account. While a normal savings account may offer 0.01%–0.30% APY, a high-yield savings account typically offers 3%–5% APY.
These accounts are usually offered by online banks, which can pay higher rates because they have lower operating costs.
Every HYSA pays interest using the APY (Annual Percentage Yield) system, which includes compounding. This means your money earns interest on interest.
For example:
Most high-yield savings accounts compound interest either daily or monthly. The more frequent the compounding, the faster your balance grows.
Here’s a simple comparison:
| Feature | Traditional Savings | High-Yield Savings |
|---|---|---|
| Typical APY | 0.01%–0.30% | 3%–5% |
| Minimum balance | Often required | Usually low or none |
| Interest calculation | Simple | Compounded |
Because of the higher interest rates, a HYSA is one of the simplest and safest ways to grow savings over time—especially for short-term and medium-term goals.
A HYSA is ideal for anyone who wants:
Use the Savings Goal Calculator to estimate exactly how much you need to save monthly to reach any financial goal.
Yes. HYSA accounts from legitimate banks are typically:
While the rates can change over time, the accounts themselves are generally very safe.
APY includes compounding and therefore represents the “true” annual return.
APY formula:
APY = (1 + r/n)n – 1
To experiment with different rates and compounding, try the Compound Interest Calculator.
A high-yield savings account is one of the easiest and safest ways to grow your savings faster than a traditional bank account. Whether you're building an emergency fund or saving for a big purchase, the higher interest rate can make a meaningful difference over time.