Key Takeaways:

• High-yield savings accounts (HYSAs), typically offered by online banks, pay dramatically higher interest rates (Annual Percentage Yields) than traditional savings accounts because they have lower operating costs (no physical branches).
• Most HYSAs compound interest daily, meaning you earn interest on your previous day’s earnings, which accelerates your overall savings growth.
• HYSAs allow easy access to your cash (high liquidity) and provide a secure place for funds like emergency savings, as they carry zero stock market risk.

Is your savings account actually helping you save, or just holding cash? There is a huge difference between traditional savings accounts and high-yield savings accounts.

One simply stores money while earning very little interest, and the other not only stores your money in a secure account, but it can also offer exponential return and help your money grow.

What is a High-Yield Savings Account?

A high-yield savings account is a secure and accessible deposit account that typically offers higher interest rates (Annual Percentage Yield, or APY) than traditional brick-and-mortar savings accounts, allowing your money to grow day after day, rather than just being stored.

How is a High-Yield Savings Account Different?

Traditional savings accounts at brick-and-mortar banks often offer very low APYs, sometimes as low as 0.01%. This means your money earns very little interest and may not even keep pace with inflation. These accounts offer very little growth.

Online banks can provide much higher APYs on a high-yield savings account compared to traditional banks. This comes down to one core concept: significantly lower overhead costs. By not having costs such as physical branches, excess staffing and minimal cash handling, online banks are able to pass those savings directly to their customers, as higher interest rates (APYs).

This difference can be substantial! For example, a $20,000 investment in a HYSA has the potential to earn hundreds of dollars in interest each year, whereas a traditional savings account may just earn a few dollars.

Quick tip: While some banks may offer very high introductory rates to attract new customers, these rates are often temporary. Always read the fine print so you can choose the option that gives you a better, long-term paycheck for your investment.  

Why Do You Need a High-Yield Savings Account?

1. Compounding Interest: Most HYSAs typically compound interest daily. This means you will earn daily interest ON yesterday’s interest, helping create exponential growth.
2. Zero or Low Fees: Many online HYSAs, like those offered by Live Oak Bank, often come with no monthly maintenance fees and no minimum balance requirements, ensuring the higher interest rate isn't eroded by costly fees. At Live Oak, customers only need a balance of at least $0.01 to earn interest.
3. Zero Stock Market Risk: Unlike investing in stocks, your money in a HYSA is not tied to the volatility of the stock market. This means the value of your principal can only grow with interest, not decline due to stock market downturns.
   In simpler terms, as long as you maintain a balance in your HYSA, your funds will continue to grow through compounding interest.

4. High Liquidity: You can withdrawal and deposit money as you please, often with no penalty or restrictions. This makes your cash accessible when you need it most.

What Do You Use a High-Yield Savings Account For?

• Emergency funds. A HYSA is the single best home for emergency savings (3-6 months of expenses). It keeps this cash safe and highly accessible for life’s unexpected events, while also building up your fund.
• Saving for large short-term purchases. Use a separate HYSA to fund goals like a new home down payment, a new car, or a wedding. This allows you to consistently add to those funds while also earning great interest.
• A general place to store your excess cash. Since most HYSAs are extremely accessible, it is best practice to keep your savings in a HYSAs where you can access that cash whenever necessary while still earning a high rate of return.

To explore Live Oak Bank’s high-yield savings account options, check out our website.

FAQs

Q: Is the money in my high-yield savings account protected?

A: If your HYSA is with a FDIC-insured institution, then yes! Your deposits are covered by the Federal Deposit Insurance Corporation - $250k per depositor, per insured bank, per account category.

*Live Oak Bank is a member of the Federal Deposit Insurance Corporation (FDIC). Your deposits are insured up to $250,000 per depositor, for each account ownership category.

Q:  Why are the interest rates with online banks so much higher than my traditional bank? 

A:  Online banks, which offer most HYSAs, have significantly lower operating costs than brick-and-mortar banks since they have no physical branches and have to employee fewer staff members. By saving money on these expenses, they can pass those savings directly to customers in the form of higher Annual Percentage Yields (APYs). 

Q:  Are high-yield savings accounts interest rates fixed, or can they change? 

A:  HYSA rates are variable, not fixed. The APY can fluctuate (move up or down) over time, often based on general economic conditions and the policies set by the Federal Reserve. Always check the current APY but be aware it is not locked in like a Certificate of Deposit (CD).