How does a high yield savings account work?

While recent interest rate hikes by the Federal Reserve have caused hardship for those looking to buy a home or refinance their existing one, there is a silver lining for savings account holders. For these people, many of whom have become accustomed to meager returns on their deposits (current interest rates for savings accounts are around 0.33%), Fed activity has provided a new way to earn more on their money.

turn to High Yield Savings Account, depositors can earn an annual percentage rate (APR) that is 10 times or more than a conventional account. And because these accounts earn more interest, the new money will compound faster, paying you substantially more than you would have if you’d left your account alone.

So how exactly do these accounts work? And how do you start? You can start by plugging in your zip code and find out how much more money you can make than the amount you plan to deposit here.

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How does a high yield savings account work?

One of the great things about high-yield savings accounts (besides the attractive interest rates) is the ability to understand how they work. It’s actually quite simple.

These accounts work just like your current savings account. As a refresher, when you put money into a savings account, your credit union or bank will pay compound interest on the money you deposit. The more you have in your account, the more you earn. The interest you earn is deposited directly into your account (think direct deposit for your checking). Over time, the account earns more interest on the new, higher balance (assuming you don’t make any withdrawals) and the bottom line builds from there.

A High Yield Savings Account Works the same way – just with a much higher interest rate. You can transfer your current savings account to a higher-yielding account by talking to a representative of your bank or union. You can link a high-yield savings account to your checking account to move funds back and forth more easily. Many high-yield savings accounts will offer debit cards for easy access to cash, though your withdrawals may be limited each month.

If earning extra cash in your savings account sounds good to you, start exploring your high-yield savings options here now or use the table below to get an idea of ​​how much you could earn.

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How much does a high-yield savings account earn?

How much interest you can earn with a high-yield savings account depends on how much you deposit and what rates your bank is offering, so be sure to shop around for the highest interest rate. Comparing a traditional savings account’s interest rate of 0.33% and a high-yield savings account’s interest rate of 3.50%, here are a few different amounts you can expect:

$500 balance:

• $1.65 after a year with a regular savings account with 0.33% APR
• $17.50 after one year with a high-yield savings account with 3.50% APR

$1,000 balance:

• $3.30 after one year with a regular savings account with 0.33% APR
• $35.00 after one year with a high-yield savings account with 3.50% APR

$5,000 balance:

• $16.50 after one year with a regular savings account with 0.33% APR
• $175 after one year with a high-yield savings account with 3.50% APR

Bottom line

High Yield Savings Account Offers account holders a painless and easy way to earn significantly more interest than they would otherwise by keeping their money in a regular account. These accounts operate similarly to other savings accounts and can generally be accessed in the same way an account holder would access any other type of savings.

If you’re ready to start earning more interest, start exploring your high-yield savings account options here now.

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