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Infographic: The Beginner’s Guide to High Yield Savings Accounts (HYSA)
High Yield Savings Account: A Beginner’s Guide to Getting 10x More Interest
When you use a high yield savings account, you could earn hundreds of extra dollars in interest every year.
I’ll show you exactly how to do that in the next 5 minutes – plus how to avoid the common mistake that could cost you tens of thousands.
I passed the CFP® exam at 16 and have helped millions improve their finances over the last 8 years. Here’s everything you need to know about high yield savings accounts.
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What is a High Yield Savings Account (HYSA)
A high yield savings account, or HYSA, is a type of savings account that pays dramatically more interest than a traditional bank account – often 10 times more.
Here’s what that difference means.
Say you keep $10,000 at a traditional bank earning 0.38%, a standard rate at most big banks. Then, you’d earn $38 in interest in one year.
If you move that same $10,000 to a high yield savings account at 4.5%, you’d earn $450. That’s almost 12 times as much just for moving your money.
Online banks offer these rates on high yield savings accounts because they skip physical branches, which keeps overhead low, and they pass those savings to you as higher interest.
Moving your money to a bank with no physical location can feel risky, so let’s talk about that.
Is a High Yield Savings Account (HYSA) Safe
Moving your savings to an online only bank feels uncomfortable when there’s no branch to walk into.
But the real security of a bank account comes from FDIC insurance – which is the insurance provided by the Federal Deposit Insurance Corporation.
It provides government-backed coverage of up to $250,000 per depositor if the bank fails.
But guess what: every reputable online bank also has this insurance!
While studying for the CFP® exam, I learned that the assumption that “online bank means less secure” is one of the most expensive misconceptions in personal finance.
People sacrifice hundreds of dollars in extra interest every year to stay with a bank they can walk into!
So before opening any account, check the FDIC’s official BankFind website to confirm the bank is insured – all it takes is 1 minute.
At an FDIC insured online bank, your money is secure.
How to Pick the Right High Yield Savings Account (HYSA)
High yield savings account interest rates are variable, which means they go up and down regularly based on current interest rates.
So to compare accounts across banks, use the Annual Percentage Yield, or APY.
Most high yield savings accounts pay interest every day, which compounds over the full year, and APY reflects this unlike just the interest rate.
And avoid rate chasing, which is constantly moving money between banks to capture a 0.1% APY difference. It’s just not worth the hassle for the vast majority of people.
So pick one reputable, FDIC-insured, and fee-free HYSA that consistently stays near the top of the market and leave your money there.
How Much to Keep in a High Yield Savings Account (HYSA)
Here’s the part many people get completely backwards: a high yield savings account is a place to keep money you might need soon, not a long-term wealth-building tool.
Many people just put too much in it.
But keeping extra cash in a HYSA actually costs you money, because even a great one can’t match what index funds deliver over a long time horizon.
So use what’s called the bucket strategy.
Keep the money for paying bills in a checking account, and keep three to six months of basic living expenses in your HYSA as an emergency fund – that’s money reserved for unexpected car repairs, medical bills, or a job loss.
Anything beyond this belongs in index funds.
But to get the full benefits of a high yield savings account, you need to actually start building that emergency fund.
Check this out to find out exactly what it is, without any jargon. I also share a step by step guide to build one starting with just $2.80 per day: Emergency Fund Explained for Beginners: How to Build it the Smart Way