What is a high-yield savings account?

In this WealthRocket article, we will answer the common question: “What is a high-yield savings account?” In an effort to give this unique type of banking tool the differentiation it deserves, we will also break down some common misconceptions about this particular type of account and provide some high-level guidance regarding whether or not a high-yield savings account is the right choice for you and your money.

Chances are, if you have a bank account, you’re already familiar with traditional savings accounts.

With this type of account, you set aside some of your money in a savings account instead of a checking account. The bank then allows you to accrue interest and earn money on your money.

However, the amount of interest in savings accounts payout is usually very low. Although there are exceptions, the average savings accounts offer a 0.05% interest rate somewhere around the ballpark.

Although it is theoretically possible to make money from this, it is no surprise that many bank patrons seek out a little bit more from their interest rate, particularly if they possess a rather modest amount of savings. That’s where high-yield savings accounts come into play.

In short, a high-yield savings account offers compound interest rates that are up to 25 times higher than the national average traditional savings account can offer.

High-yield savings accounts are usually not found through your regular bank and are often instead exclusively offered through online banks that each has their specific qualifying requirements.

In the next section, we will offer a deeper overview of why high-yield savings accounts can offer such high rates on interest, as well as what you should consider while shopping around for a high-yield savings account.