High-Yield Savings Account Rates

How Are High-Yield Savings Account Rates Determined?

High-yield savings account rates are loosely tied to the Fed’s benchmark interest rate. But they are also affected by a bank’s business strategy.

When the Fed raises or lowers interest rates, it creates a ripple effect across the economy that typically causes the rates on high-yield savings accounts to move in the same direction.

The effect is not immediate. It can take some time for the rate on a high-yield savings account to change after the Fed makes a change.

Additionally, rates are also based on individual institutions’ business decisions. 

For instance, online banks’ business model relies heavily on attracting new depositors so they have money to make loans. These banks keep their rates competitive and high to attract those depositors.

So changes in high-yield savings account rates may not be the same as the amount of change announced by the Fed in the benchmark rate. 

What Makes a ‘Good’ Rate vs. Average Rates?

While the average savings account rate was around 0.46% in early 2024, you could find high-yield savings accounts with interest rates of 4.5% or higher.

That’s more than 10 times higher than the national average.

Shopping around for the best rates can make a huge difference in the amount of interest you can earn with a high-yield savings account. Coupled with compound interest rates, a high-yield savings account can build your savings much faster than lower-yielding, traditional savings accounts.

How To Compare High-Yield Savings Account Rates

Compare several different accounts when shopping for a high-yield savings account. Look for the highest rate and the lowest fees.

Don’t be afraid to look at online banks — since they typically offer much higher interest rates on high-yield savings accounts. But make sure that your account is federally insured to safeguard your savings.

Also, consider qualities other than interest rate alone when shopping for a high-yield savings account. The account may have requirements you must follow or fees you must pay.

High-Yield Savings Account Features to Compare

Account Fees

Check to see if your account charges monthly maintenance fees, minimum balance fees, excess withdrawal fees, ATM fees or other common charges. These can add up and dilute or erase any interest earnings.

Compounding Frequency

Compounding allows you to earn interest on your interest. The more frequently your account compounds, the faster your interest earnings grow. High-yield savings accounts may compound daily, weekly or monthly. Look for accounts that compound more often.

Initial Deposit

Some high-yield interest accounts require a minimum initial deposit to open your account. If you don’t have a lot of money to get started, you can still find banks that will let you open an account without an initial deposit.

Minimum Balance

Some accounts will adjust your interest rate based on your balance, meaning they can lower your interest rate if your account balance falls below a certain point. If your account works this way, make sure you know when your interest rate will drop.

The FDIC places rate caps on savings and money market accounts for less than well-capitalized institutions. This keeps them from offering rates that significantly exceed the prevailing rate in the market.

FDIC Rate Cap Information, December 18, 2023

Source: FDIC

What Causes High-Yield Savings Account Rates To Change?

High-yield savings account rates are variable — meaning the rates move higher and lower based on fluctuations in the economy. 

The annual percentage yield — or APY — that you have when you open a high-yield savings account is not guaranteed forever. It can change at any time.

If the economy is doing well or inflation is rising quickly, the Fed raises the benchmark interest rate. This creates a ripple effect eventually raising your high-yield savings account’s interest rate. 

Likewise, if the economy has a downturn or goes into recession, the Fed will lower the benchmark rate, which will eventually lower the rate on your high-yield savings account.

Even though rates may change, a high-yield savings account can still be a good place to save money. Accounts are relatively low risk and can be federally insured. And they can earn substantially more than a traditional savings account.

How To Maximize Your High-Yield Savings Account Rate

In addition to finding the best rates, there are other steps you can take to squeeze more money into your savings account. 

Different features of high-yield savings accounts can cost you money or make you money. Avoiding fees and maximizing perks or benefits can put more money in your savings.

You’ll have to do your research and compare accounts before choosing the best one for you.

How To Get the Most Out of a High-Yield Savings Account

Research Rates

You’ll need to understand what passes as competitive. While the highest rates were around 5% in early 2024, many large banks were still offering savings account rates at a fraction of that. And keep an eye on changes to interest rates. If the Fed begins lowering the benchmark rate, it will affect how banks adjust their rates.

Avoid Tiered Interest Rates

Some banks tie their high-yield savings account rates to how much money you keep in your account. The bigger your balance, the higher your interest rate. This means if you take some of your savings out of the account, that account is suddenly earning less money.

Shop Around

The highest rates for high-yield savings accounts are likely going to be from online banks. Do your online research and compare different banks’ offerings. Be sure to compare fees, penalties and other account features before settling on an account.

Think About Switching Banks

Only about 8% of Americans changed their banks within the previous year, according to a 2021 survey by Insider Intelligence. But sticking with the same bank may mean missing out on competitively rising savings account rates. Therefore, it’s smart to consider moving your money if rates are climbing.

Watch Out for Introductory Offers

Some banks may offer higher interest rates for new deposits, but lower them substantially within a certain period of time. Others may limit the amount of money in your account that can earn that higher interest rate. Check to see how much interest you will actually earn on all your money.

Comparing High-Yield Savings Account Rates With Other Savings Options

A high-yield savings account can play a role in your personal finance strategy, but you should consider whether other savings options work better for a particular goal.

High-yield savings accounts are best suited for short-term or intermediate-term savings. If you are saving for a longer-term goal, like retirement, inflation may chip away at your savings. 

Some alternatives may work better for you in the long term as well as other options that may be competitive with high-yield savings accounts for short-term or intermediate-term savings.

Alternatives to High-Yield Savings Accounts

Money Market Accounts

Money market accounts, like high-yield savings accounts, offer more interest than traditional savings accounts. Money market accounts may have rates competitive with high-yield savings accounts. Both have restrictions on the number of withdrawals you can make each month. 

Certificates of Deposit (CDs)

CDs typically offer higher rates than high-yield savings accounts. However, you face steep penalties if you withdraw your money before the CD matures. If you don’t need to access your savings for three months to five years — the typical terms of a CD — a certificate of deposit may be a good option.

Fixed Annuity

If you’re looking for longer-term savings, a fixed annuity may be an option. These offer higher rates and can be set up to provide a steady income stream at some point in the future — typically when you retire.

Talking with a financial professional can help you to decide on the best high-yield savings account for your needs. Or they may help you find a better solution for your goals.

FAQs About High-Yield Savings Account Rates

Editor Malori Malone contributed to this article.