What is a high-yield savings account?

By Sierra Black

As you search for the best interest rates on your savings, you've probably encountered the term "high-yield." High-yield savings accounts, high-yield money market accounts and high-yield CDs are all on offer in the banking marketplace.

What does "high-yield" really mean?

A higher interest rate

At core, "high-yield" is just a fancy way of saying this account pays interest at a higher than average interest rate. You should expect a high-yield savings account to pay out more in interest than the passbook savings at your local bank. Likewise, a "high-yield" CD should offer a higher than average interest rate.

The term is generic, though. It's more of an adjective like "Super!" than it is a definition of a particular account type. This means you should look closely at the details when considering a high-yield account. Is the interest rate really better than what you'd get elsewhere?

Shopping around might bring you a higher interest rate. Banks compete with each other, but they don't all use the same terms. Your local bank or credit union may offer an ordinary CD with a better rate than a "high-yield" CD at a different bank.

Look online for the best deals

Online banks typically offer better rates than their brick-and-mortar counterparts, in part because they have lower overhead costs. For customers who don't mind not getting face-to-face customer service at a bank branch, the better interest rate gives online banks a competitive edge.

Additionally, you may find on-line banks have fewer restrictions. Your local bank may offer a high-yield savings account with a high minimum balance or tight restrictions on monthly withdrawals. You may be able to get the same interest rate online for a regular savings account that you can put money into, and take money out of, at will.

Pay attention to the numbers

Assuming you can meet the minimum balance requirements, what really matters when you're choosing a savings account is the interest rate. Look past terms like "high-yield" and focus on the actual interest rate you're being offered. It's those numbers that determine how solid an investment this savings account will be.

While it's unlikely that you'll ever get rich off your savings account, you still want that money to perform as well as it can for you while it's sitting in the bank.

Shopping for the best interest rate, and periodically checking to be sure you're rate hasn't lagged behind the competitors, will ensure you get the best return on your savings. It's those numbers that really count, not the words banks use to describe them.

Starting your search with "high-yield" or "high-interest" accounts is a great strategy. Most of these accounts really do offer better than average interest rates. Just be sure you look carefully at the actual interest rates. They vary from bank to bank, and an online search is an easy way to find the best interest rates.