High yield savings account vs. regular savings account

Regular vs. high-yield savings account: What’s the difference?

Interest rates for regular savings accounts are at or below 1%
Interest rates for high-yield savings accounts are upward of 5%
Both are good for short-term savings goals

Updated: Dec 13, 2024 / 08:07 AM CST

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(NewsNation) — Establishing an emergency fund is an important step in your financial health.

Experts recommend saving six to three months’ worth of expenses in an emergency savings fund, but only 44% of Americans have at least three months of expenses saved, according to a Bankrate survey.

Opening a savings account to earn interest can be a good place to start. There are regular savings accounts and high-yield savings accounts.

What is a regular savings account?

A traditional or regular savings account is a type of bank account designed to save money while earning interest over time.

It is easily accessible through an FDIC-insured bank or credit union, although the number of withdrawals you can make each month may be limited.

“These accounts are not intended for frequent withdrawals or transfers, the way a checking account is,” according to Experian, one of the three major credit reporting bureaus.

The minimum deposit to open an account is usually low. Interest rates hover around or below 1%, which is lower than high-yield savings accounts.

Traditional savings accounts are good for people who need to save in the short term with easy access to funds but aren’t concerned about earning high interest.

Pros:

Easy to open
Easy to access
Low minimum deposit
No monthly maintenance fee

Cons:

Low interest rates
Limit on monthly withdrawals
Penalty for exceeding monthly withdrawal limit

What is a high-yield savings account?

“An elevated interest rate is the defining trait of a high-yield savings account,” Experian said.

High-yield savings accounts through an online bank or credit union allow you to earn more interest on your money compared to other savings accounts.

The annual percentage yield (APY) for these can be upward of 5%.

For example, “With a 4% APY, a savings balance of $1,000 would earn about $41 after a year,” NerdWallet said. “It may not make you rich, but the earnings are much better than in an account with an APY of, say, 0.50%, which would earn about $5 during the same time period.”

The FDIC and the National Credit Union Administration insure up to $250,000 for individuals with these accounts.

A high-yield savings account is good for people who want to earn a competitive rate on their money and don’t mind online-only banking.

Pros: