What Is a High-Yield Savings Account and How Does it Work?

A high-yield savings account, also known as a high-interest account is often of interest to those who don’t want to put their savings in the money market but also want to see their funds grow. Paying significantly more than the traditional savings account, putting your money in a high-interest account is a great short-term option for saving accounts such as an emergency fund or down payment fund. It’s an account for the money that you want to grow while also having it close at hand if you need it.

Every day you go to work, you’re making money. If you took a month off to chill out by the pool, that paycheck would no longer be coming in. Putting your money in an account that doesn’t yield interest is like sending it out to the pool — only it's a lot less relaxing for you.

Your money doesn’t want a break. It’s designed to work and bring home that compound interest bacon. Compound interest means that the money you put in is earning interest and that interest that the money earned? Yep. It’s making you interest too. The more money you can set aside to grow, the more compound interest you’ll earn.

How Do High-Yield Savings Accounts Make Money?

High-yield savings accounts make money by offering more favorable interest rates than traditional savings accounts. Money in a high-yield account might not make as much as funds in the money market but the day-to-day earnings are a lot less volatile than stock market investments.

Traditional savings accounts are a good place to put money that you might need to easily obtain. Often, savings accounts are accessible from ATMs. If you know you’ll be transferring money regularly from savings to checking, it’s good to keep a traditional savings account on hand. The interest earned on traditional saving accounts, however, will just about keep up with inflation, meaning that money is not bringing home a paycheck for you. If you want your savings to work, a high-yield savings account is where you should be keeping your dough.

Eligibility requirements for a high-yield account are different depending on who you’re banking with. At DCU, we offer the Advantage Savings Account which offers a higher interest rate with no minimum balance to open the account or obtain the available APY. Interested in putting your money to work? Find out more about our Advantage Savings Account.

Should I Open a High-Yield Savings Account?

It’s hard to decide what to do with your money. Below, we’ve listed a few reasons why a high-yield savings account might be for you.

• Higher interest rates: With compound interest, the money set aside from your paycheck will also be making a paycheck.
• Meet your savings goals: Unlike putting money in the stock market or locking it away in a CD, putting your money in a high-yield savings account keeps it accessible. This makes these accounts great for those that are saving for something big such as a down payment on a house.
• Accessibility: While it’s to let your money grow untouched in your high-yield account, your money will be there for you when you need it. There are no fees or penalties for taking money out at any time.
• Insured Funds: If you’re banking at a federally insured institution like DCU, the money in your share accounts will be insured up to $250,000 per person*.

Keeping your high-yield savings account safe

It’s well-known that a high-yield account is a way to safely invest your money, but there are actions you can take to make your account even safer. Before you deposit your funds in a high-savings account, you should make sure you’re leaving your hard-earned money in good hands. Here are a few things to check to keep your money safe.

• Is your Credit Union Insured? Reputable banks and credit unions should be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
• Use a good password: Don’t use the same password for your bank that you’ve been using for your social media since high school. There are better ways to keep your ex-boyfriend’s cat’s memory alive.
• Check Your Wifi: Don’t use public wifi to check your bank accounts. This makes it easier for hackers to access your phone and track what you’re doing. Using your cell phone data is worth the safety of your hard-earned funds.

The Benefits of a High-Yield Savings Account from DCU

Not all credit unions and banks offer the same terms and conditions for their high-yield savings accounts as DCU. Learn why DCU is a great place to start putting your savings to work.

Flexibility and accessibility

• Check your account balance anytime through our DCU app.
• Transfer money into and out of your account with mobile or online banking.
• Regularly transferring from certain accounts? Link them for easy transfers.

Minimal fees and low costs

• Currently, the DCU high-yield savings account called The Advantage Savings account has a 3.56% APY¹ (see rates & disclosures). The national annual percentage yield (APY) for traditional savings accounts is .58%².
• Some banks and credit unions may charge fees such as inactivity, minimum balance and maintenance fees. DCU is proud to offer our high-yield savings account free of charge.

How to Use a High-Yield Savings Account for Financial Goals and Planning

It’s important to plan for the future. Utilizing a high-yield account is a great way to dream up what’s next or be ready for what might come your way. Here are some ways DCU members use their high-yield accounts.

• Saving for short-term goals such as a wedding or a big vacation
• Saving for long-term goals such as a down payment on a home or retirement
• Establishing an emergency fund. An emergency fund should cover three to six months of your expenses.
• Incorporating high-yield savings into a comprehensive financial plan. Combine a high-yield savings account with other investments such as stocks, bonds and certificates of deposit (CDs).

Frequently Asked Questions About High-Yield Savings Accounts

• Are high-yield savings accounts federally insured?
  Yes. If your credit union is insured then any deposits made in your high-yield savings account will be insured up to $250,000 per person*.” And then please add the following disclosure with the asterisk to the bottom of the article with the other disclosures. 
• Can I access my funds easily in a high-yield savings account?
  While it’s best to let your high-savings account funds rest and grow, they are easily accessible should you need them. Transfer money out of your account as you need to online or through our app.
• What are the potential risks of high-yield savings accounts?
  Unlike other forms of investment, high-yield savings accounts don’t put your money in the money market so the potential risks are very low. The biggest risk is losing out on the higher interest rates that the stock market can offer but your high-yield account is a good compromise due to the lack of market volatility.
• Can I have multiple high-yield savings accounts?
  Yes, you can have more than one. In fact, if you’re concerned about keeping your balance under $250,000 to ensure all of your funds are federally insured in case of a credit union collapse, keeping more than one high-yield account is a great idea.
• How often do interest rates change in high-yield savings accounts?
  While rates may change at any time, they typically change after the Federal Reserve meets to adjust the interest rate. This meeting happens eight times a year.
• Are there any tax implications for interest earned in high-yield savings accounts?
  The interest earned on a high-yield savings account is taxable as income.
• What is considered high-yield for a savings account?
  Interest rates often change. As of January, 2024 DCU’s high-yield account offers a 3.56% APY¹ (see rates & disclosures) while the federal average savings rate is currently .58%².

Making Your Money Moves

High-yield savings accounts are a great way to start putting your money to work without risking it in the money market. When making a financial plan, it’s important to save in a few diverse ways. Check out DCU’s retirement savings accounts for longer-term saving plans and our certificate options for savings with a higher yield but lower fund accessibility.

If you’re interested in making your money work for you as you build an emergency fund or save for that big wedding, a high-yield savings account is a great option for you. Get your high-yield savings account started today!

*DCU share accounts are insured up to $250,000 per person and Individual Retirement Accounts (IRA) are insured separately up to $250,000. Joint accounts are insured separately up to $500,000 (maximum $250,000 for each joint owner). The interest that a joint owner has in all joint accounts will be added together and insured up to $250,000. Insurance for Trust, Fiduciary, and Business (Partnerships, Limited Liability Companies, or Corporations) accounts may vary.

For additional information, please visit the NCUA website
1 Advantage Savings APY effective as of 1/1/2024.
2 Source: Bankrate.com | National average savings rate effective 1/4/2024, please visit Bankrate to view the current national average for savings account interest rates.
Please note, membership is required to open a DCU savings account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.