How Do High Yield Savings Accounts Work?

A high-yield savings account offers a greater interest rate and easy access to the funds without any penalty or risk. According to the Federal Reserve, its safety is 100% guaranteed. So, how do high yield savings accounts work?
How high yield savings accounts work
How Do High Yield Savings Accounts Work?
Let’s try and answer the question, ‘how do high yield savings accounts work?’ and learn how high-yield savings accounts help people grow interest in their funds quickly.
In this article

A high-yield savings account is an FDIC-insured savings account with earning rates that are much higher and faster than the national average or traditional savings account. They can earn around 4% APY. By comparison, the national savings average is 0.45% APY. So, how do high yield savings accounts work? 

A high-yield savings account awards you better interest rates on your savings than any other traditional savings account. The interest offered on your savings sitting in your account is known as the annual percentage yield (APY). 

Besides returning better and higher returns on your investment, a high-yield savings account allows your savings to grow completely risk-free along with easy access to it through online transfers, in-person transactions, and ATM withdrawals. This savings account is ideal for keeping short-term savings. 

Note that the interest rate in high-yield savings accounts is variable and unstable. Its rates keep going up and down following the FDIC’s changing interest rate. Choosing the best HYSA involves considering critical factors like interest rates, fees, minimum balance, and accessibility. Beem can help you find the best high-yield savings account to suit your needs.

How do High Yield Savings Accounts Work?

Withdrawals and Money Transfers

You’re supposed to open a high-yield savings account and your checking account at two different institutions to grow interest on your savings. Your high-yield account and check account are linked together to easily transfer savings through a mobile app or online.

You can also transfer funds to your linked checking account or even withdraw cash through an ATM. However, some banks may limit you to six withdrawals or transfers per monthly cycle.

Understanding APY 

Depositing money into a high-yield savings account rewards you with interest for keeping your money in the bank. This interest is known as APY (annual percentage yield). To receive this interest on your savings, you just have to open an account, and the bank will pay you according to the rate and time listed by it. 

Compound Interest

A person can quickly grow his interest in a high-yield savings account with the help of compound interest. Compared to simple interest, compound interest means you earn interest on both your principal balance and the interest it earns.

With simple interest, it is just calculated based on your principal, or the balance you have in your savings minus interest. How often your interest is compounded depends on your savings account. Some compound daily, while others compound monthly. 

A high-yield savings account allows you to transfer or withdraw your funds up to six times without any penalty fee or any risk of having the account closed.

FirmAPY RateNotes
UFB Direct4.81%High APY with no monthly or excessive transaction fees, no minimum balance, or maximum transaction fees
Lending Club4.25%High APY with no maintenance fee and no minimum balance requirement after $100 to open your account.
Synchrony4.15%High APY with no monthly or excessive transaction fees, no minimum balance, or maximum transaction fees. Limit of six free withdrawals or transfers per statement cycle.
Marcus3.90%High APY with no monthly or excessive transaction fees, no minimum balance, or maximum transaction fees. Minimum $1 deposit to earn interest.
Ally3.75%High APY with no monthly maintenance or minimum balance fees. It charges $25 overdraft fees and $10 per transaction if you make more than six withdrawals or transfers per statement cycle.

How to Use a High-Yield Savings Account

Now that we have answered the question, “How do high yield savings accounts work?“, let’s look at how to use a high-yield savings account.

  1. Compare different savings accounts to find the one with the most competitive interest rates, and then choose the right one. Credit unions and online-only banks often offer accounts as they provide higher rates due to lower operating costs.
  2. Save for emergencies: A high-yield savings account is a perfect account to save your emergency or future funds. This generally covers over 3-6 months’ worth of expenses. This way, money earns a better return while still being easily available when in need.
  3. Save for major expenses: A high-yield savings account helps you reach your savings goals no matter what you’re planning to buy. Be it a car, a home, or any other significant item, to avoid transfer fees and automate your savings, you can even set up recurring transfers from your major account to your high-yield savings account.
  4. Save for huge events or life modifications: Whether you’re preparing for a vacation, a wedding, or any other major life event, a high-yield savings account can help you save for it more easily and efficiently. Decide how much you might need and then set aside your savings in the high-yield account to earn better returns.
  5. Use a high-yield savings account as part of your larger investment strategy. It should be just one portion of your overall financial portfolio. Determine how it fits into your investment budget and goals, and then use it to maximize your returns and manage risks.
  6. Identify and compare rates: Interest rates on high-yield savings accounts change over time, so keep an eye on the market and time-to-time compare rates from time to time to make sure you’re still getting the best return on your savings.

also know about : What you need to start a bank account online

Savings Account Security Checklist

Below is a savings account security checklist in the US:

  1. Interest Rate: Search for a savings account with a competitive interest rate to maximize your earnings as much as possible. Compare rates from different unions and banks to find the best one for you.
  2. Required Initial Deposit: An initial deposit is a requirement in some of the savings accounts to be opened. Ensure you have enough funds to meet the minimum deposit requirements.
  3. Required Minimum Balance: Some savings accounts need a minimum balance to earn interest or avoid fees. Ensure you can control the minimum balance to avoid penalties.
  4. Fees: Search for savings accounts with low or no fees at all. Common fees include overdraft fees, AT fees, and monthly fees.
  5. Brokerage Accounts: Savings accounts do not offer investment options such as mutual funds and stocks as they are not brokerage accounts. Make sure to open a brokerage account along with a savings account if you’re interested in investing.
  6. Accessing Your Money: Savings accounts provide easy access to your money through online transfers, in-person transactions, and ATM withdrawals. Ensure you understand all the policies for accessing your money.
  7. Deposit Options: Savings accounts generally offer deposits through check deposits, in-person deposits, or direct deposits. Identify and choose an account with whichever deposit options work best for you.
  8. Compounding Method: To calculate interest rates, savings accounts often use different compounding methods. Search for an account that compounds interest either daily or monthly to maximize your earnings.

You may also like: Are You Using the Right Saving Strategy?


High-yield savings account benefits us in a lot of ways. It increases the interest rates on our funds way harder and faster. It’s an insured policy with the Federal Reserve that guarantees the safety of our future and emergency funds. Its high rate of interest in keeping funds in banks ensures the fulfillment of our future needs and goals. Although the FDIC’s interest rate changes often lead to low-interest returns, its safety is always ensured.

Choosing a high-yield savings account totally depends on your trust and risk; it’s important to check everything about the bank and its rules and regulations. It’s crucial to understand the investment procedures and processes before making any decision. Learn more about HYSAs on Beem.


How much will $10,000 make in a high-yielding savings account?

$10,000 will make up to $485 in a year in a high-yielding savings account if the rates remain unchanged. The earned amount typically depends upon the interest rate and compound rates, so it’s essential to compare these before choosing the account that meets your expectations.

Do online savings accounts have fixed rates?

High-yielding savings accounts generally have unstable interest rates that change at any time. While some accounts may offer fixed rates for a limited time, comparing rates and choosing the account that meets your expectations is crucial.

Can one ever lose their money in a high-yield savings account?

It is indeed possible for someone to lose money in a high-yield savings account due to its instability. Although it is generally less risky than any other savings option.

How often do high-yielding savings rates change? 

High-yielding savings account rates are unstable and can change at any time. It often changes after a Federal Reserve committee assembles to change interest rates. 

Is money safe in an online savings account?

Banks install different security methods to safeguard funds, such as multi-factor authentication, encryption, etc. Therefore, the money in any online savings account is generally safe as long as the bank is insured by the FDIC.

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Fatema Yusuf

A passionate writer, who loves to write about anything and everything. She usually writes about finance and investment options. She enjoys talking about personal development and loves to help people grow. she loves to cook for kids and upcycle old stuff to give them a new life.


This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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