What is a High Yield Savings Account (HYSA) The complete guide 2022

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Ok, so you are wondering what a HYSA is? A High Yield Savings Account is a type of savings account that allows your money to earn higher interest than it would in a traditional savings account. 

And to think the majority of consumers have their savings in a traditional savings account at a brick-and-mortar bank, not realizing they are losing hundreds and potentially thousands of dollars. 

With a high-yield savings account, you could be earning up to 10-16X money in interest. 

 

Why even think about saving in a high-yield savings account? Well, there is a thing called inflation, where goods and services go for higher prices, often lowering the value of money.

And so by only saving under your mattress or in regular savings account you are potentially losing money because those savings are not reflective or keeping up with inflation. 

Inflation is something that we can’t avoid, and it is guaranteed to happen every once in a while depending on what is happening in the economy and other worldwide events (like a war, or shortage in oil). 

It was not until late in my 20s that I found out about the benefits of a high-yield savings account, and once I found out I needed to tell the world. This is why this blog is all about explaining what is a HYSA, which HYSA over the best return on investment, and why you should have a HYSA. 

WHAT IS A HYSA? AND HOW DOES IT WORK?

Traditionally speaking a savings account is a place where you deposit money to be guarded by a bank, but do you know that the bank actually uses that money to lend to other customers and the bank earns interest on that money? 

Let’s say you go to the bank and tell the teller that you wish to deposit $10,000USD into your traditional savings account. 

Then deposit it and you go about your day, that $10,000USD, could earn up to one whole dollar in a year. 

But another customer comes right after you and asks the bank to lend them $10,000USD the bank agrees but only if the customer agrees to pay them an interest rate of 10% when they return the money. 

The customer agrees, and a year later, when they decide to pay the bank back, the bank made $1,000USD on the $10,000USD that YOU originally deposited, and you are only earning ONE DOLLAR on that investment. 

That is the difference between a traditional savings account and HYSA. 

Here is a quick visual of how the money would grow on both accounts, using the example above. 

TYPE OF ACCOUNT INTEREST BALANCE AFTER 12 MONTHS
Traditional saving .01% $10,001
HYSA .7% $10,070

The reason for this much higher interest rate is because since these accounts do not operate out of brick and mortar, they don’t accrue as much overhead cost as a traditional bank, and so those savings can be offered to you in the form of higher interest and better return on your money. 

IS MY MONEY SECURED?

Yes, just like a regular savings account, if the bank that you have your HYSA is FDIC-insured that your money is protected. 

Since these accounts may also be insured like a regular bank would, an HYSA would be a great place to have your emergency fund savings, since it might be money you need in the future, and these accounts are free of risk of the volatile stock market. 

THINGS TO CONSIDER WHEN SELECTING A HYSA

  1. Fees 

Some institutions that offer HYSA might have fees associated with their transactions, withdrawals, and deposits. 

  1. FDIC-Insured 

The Federal Deposit Insurance Corporation is backed by the government and it usually protects deposits of up to $250,000 USD. THIS IS IMPORTANT!!!!

  1. Balance requirements

Some traditional banks will require a minimum balance you need to maintain at the end of each day to avoid any fees or penalties. And so for HYSA it is the same, well, some, not all HYSA have a minimum balance requirement, so try to find one that offers this perk. 

  1. Transfer and Withdrawals

All HYSA accounts have a minimum amount of monthly withdrawals they allow, this is why it is important to use this account for long-term saving goals like an emergency fund. There are also some caveats that some HYSA accounts will take up to 3 business days to release funds once you have requested a transfer or withdrawal. 

  1. Interest Rate

Not all HYSA were created equal, the interest rate you can earn on this type of savings account can range from 0.40% to 0.90% that is the year to date (2022), these can vary depending on the economy, inflation, and other factors. Keep in mind that these rates can and will fluctuate.

  1. Customer Support and Ratings

This is super important, it is your money and you want to bank with a company that will care to provide reliable support when you need it. There are some HYSA account providers who are known for their infamous customer support or lack thereof. 

  1. Online and mobile banking

Due to the electronic nature of these accounts, it is important to find one that has a mobile-friendly app that you can easily access anytime and anywhere. Taking inventory of the bank’s website and reviews on the app store could give you a real insight into how the experience would be. 

BENEFITS OF HIGH-YIELD SAVINGS ACCOUNT; IS A HYSA RIGHT FOR YOU?

As briefly mentioned above at the start of this post, an emergency fund could be a great type of account to have in a HYSA. 

Now, there are many other financial goals you could plan and benefit from having a HYSA under your name. 

If you need to plan for the following: 

  • New car
  • College tuition
  • New home
  • Launching a business 
  • Planning a wedding

Then a HYSA could be a great option for you and your financial goals. 

Another great benefit is that the majority (if not all) HYSA offer accounts free of maintenance fees (ugh, annoying to have to pay $5-$10 per month for maintenance at other traditional banks). 

One thing to note is that retirement planning might not be the best fit for a HYSA, as the return on investment is not as great as it would be in a tax-advantaged account like a 401K, IRA, etc. 

HOW TO OPEN A HYSA

It is super easy to open an account online. Before you do, be sure to do your research and take into consideration the points made on “THINGS TO CONSIDER WHEN SELECTING A HYSA” 

Ask yourself what are your goals with this account and the main purpose behind opening one, and that should help you choose the best account based on your personal financial situation and needs. 

Once you have chosen a bank you will need the following information: 

  • Name
  • Home Address
  • Social Security Number
  • Government Issued ID
  • A bank account to transfer the money to and from

TOP THREE HYSA ACCOUNTS (I ACTUALLY USE)

I love these because it is super simple to set up your account, there are no minimum balances required, no maintenance fees, relatively easy to use app and bank interface, amazing customer support, and are all FDIC insured. 

  • Marcus by Goldman Sachs
  • Capital One (Capital One 360)
  • Ally 

As always I hope this one serves you well, remember that you are not alone and we are here to support each other during this difficult time. 

Until the next post, I will see you back here at the same place, same time, and don’t forget to drop your questions and suggestions below by typing a comment or simply head over to the contact tab and shoot me a message directly into my inbox. 

DISCLAIMER: I AM NOT A FINANCIAL ADVISOR. INFORMATION FOUND ON THIS SITE IS AN OPINION BASED ON MY PERSONAL EXPERIENCE AND SHOULD ONLY SERVE AS EDUCATION, AND NOT PRESCRIPTIVE ADVICE. PLEASE CONSULT A FINANCIAL ADVISOR. 

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