High Yield Savings Account (HYSA)

By Jon Scott

Abstract: This article highlights the benefits of high-yield savings accounts (HYSA) compared to traditional savings accounts, how to shop around for the best value HYSA, and how to create a HYSA.

What’s the difference between earning $10 on your savings balance per year versus $166? A high yield savings account. Unlike regular savings accounts, high yield savings accounts can earn anywhere from 10 to 25 times more interest than a standard savings account. Let’s say you were holding $10,000 in a standard savings account with the national average APY (interest rate for a savings account) of around 0.10 percent. If you kept a balance of $10,000 for the whole year in a standard savings account, you'd earn $10 for the entire year. Now, that same $10,000 invested in a high yield savings account with an APY of 1.65 would earn $166.36. Pretty big difference, right?

What Money Should I Put in My High Yield Savings

The most important funds that need to be in your high yield savings account is your emergency fund. An emergency fund should cover three to four months for a single earner, six months for a single income earner, and an extra $2000 per child. Placing these funds in your high yield savings account makes sure the funds are still accessible (liquid), and provides a much larger interest rate than normal bank savings.

Beyond your emergency fund and any other savings that you need to be easily accessible, there is little else that needs to sit in your high yield savings account. If you are saving money that will not be deployed for a year or more, an equally safe and better place to invest the money is I Bonds if the amount is under $10,000; treasury inflations protected securities, and treasury bonds are other options as well.

Choosing a High Yield Savings Account

So how do you go about choosing a high yield savings account? The most important element is the APY, which stands for annual percentage yield. The APY varies across HYSA institutional providers, and the rate is constantly changing (you can find a continuously updated list here). A second important element is the minimum initial deposit. Some institutions require a deposit in order to open the account, whereas some do not. There may also be a minimum balance fee, meaning the balance must stay above a certain amount in order to avoid this fee. Next, you want to watch out for account fees, which are fees charged by the bank to maintain your account. The final financial aspect to consider is the compounding frequency. High yield savings accounts compound daily, monthly, weekly, or even annually. The more frequent the better.

An often neglected element that is very important is usability and customer service. You want to find an institution that provides easy access to your funds online, good customer service, and the ability to easily transfer money. These are some simple yet important questions to ask.

The steps to opening a high yield account are very easy. In this example we’ll cover opening an account with American Express (click here to see account details and FAQs). At the time of this article, the APY was 1.40, the minimum balance required was $0, monthly fees were $0, the account fees were $0, and American Express allowed up to nine transfers per month for the account. Lastly, the account compounds daily and the gains deposited to your account monthly.

  1. Visit the American Express High Yield Savings webpage and click “Open Account”

  2. You will need to be 18 years or older, be a US citizen or a resident alien with a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) with a home address, and the account must be for personal use. If you meet all these qualifications, click begin.

  3. Select if you are opening a joint account or not. A joint account would mean another person would have access to the account in addition to yourself.

  4. You will need the following info to set up an account: first name, last name, date of birth, SSN or ITIN, address, email address, and phone number.

  5. Read and accept the Terms and Conditions.

  6. Click the “Manage Banks” Button

  7. Click “Add New Bank Account” to add the bank account that you will be transferring funds from to your high yield account. American Express will send two deposit amounts to the linked bank account (this may take a day). Once the amounts have been deposited you will log back into this Savings Account and indicate the amount of each deposit to confirm.

  8. After the deposit amount is confirmed, you can click the Make A Transfer button.