If you have some spare cash and don’t want to risk the stock market, there are a number of bank accounts where you can place the funds. Two of the most common options are regular savings accounts and high yield accounts, but it is important to understand how these accounts differ to choose the right one for your needs.
Regular Savings Accounts
Most banks and other financial institutions offer a regular savings account. This is often offered in addition to a checking account, but you can also open a regular savings account independently of other accounts. Some banks will encourage customers to have a regular savings account in addition to a checking account with reduced fees or other perks that can reduce your overall banking costs.
In return for depositing funds in a savings account, you will earn interest on the balance. This is referred to as the APY or annual percentage yield. In simple terms, this is the percentage you will earn if the funds remain in the account for a full year. So, if the APY is 1% and you have $1,000 in the account for a year, you’ll receive $10 in interest. However, the financial institution typically pro-rates the interest earned, and it is often calculated daily or monthly, so you don’t need to keep the money in the account all year to earn interest.
While you can’t write checks from this type of account, most regular savings accounts have an ATM card, so you can withdraw funds or if you choose an account from a traditional bricks and mortar bank, you can also perform transactions in branch with a teller.
The Advantage of Regular Savings Accounts
- Widely Available: You can find regular savings accounts at traditional banks, online banks, credit unions and other financial institutions
- ATM Access: Many accounts have an associated ATM card, so you can withdraw cash as and when you like
- Additional Benefits: Some financial institutions offer additional benefits, such as waiving monthly maintenance fees for checking accounts, if you hold a regular savings account at the same bank. Holding an account may also open some preferential status benefits, such as relationship rates.
- Limited Account Minimums: Most financial institutions do not impose any account minimums to maintain a regular savings account.
The Disadvantages of Regular Savings Accounts
- Minimal Interest: The APY on regular savings accounts can be very low. For example, in March 2025, the national average APY for this type of account was just 0.61%, with some banks offering as little as 0.01% APY.
High Yield Savings Accounts
High yield savings accounts have a similar account structure to regular savings accounts, but, as the name suggests, they offer a higher yield on balances. In some cases, you can earn up to 12 times the national average savings rate, which can add up to significant gains, if you have the funds in the account in the short to medium term.
While there are some bricks and mortar banks that offer high yield savings accounts, they are typically offered by online institutions or as an online only account option. This means that you lack the support of a physical branch network. So, if you want to pay money into the account or make a withdrawal, you may need to transfer the money using another account. In many cases, financial institutions don’t offer an ATM card with a high yield savings account.
Although this may make the account a little limited, it does reduce the management costs for the financial institution, hence the higher interest rates. Some accounts also have restrictions on how many withdrawals you can make in any calendar month, but this is no longer federally mandated. So, you may incur a penalty if you make more than six withdrawals, or have your account automatically converted into a regular savings account if you continue to make frequent withdrawals.
The Advantages of High Yield Savings Accounts
- Higher APY: As its name suggests, you can expect a far higher yield on your savings with this type of account. In some cases, it can be up to 12 times the national average savings rate.
- Additional Account Features: Some accounts have additional features, such as savings buckets or pods that allow you to save for multiple goals within the one account.
- Minimal Fees: Most high yield savings accounts have little or no fees associated with day to day use.
The Disadvantages of High Yield Savings Accounts
- Limited Branch Support: You may not be able to access the branch team even if you choose a traditional bank for your high yield savings account.
- Account Minimums: Some financial institutions impose a minimum amount needed to open and maintain an account, which may make it difficult for some people to access.
High Yield vs Regular Savings Accounts: Which One is Best?
If you’re considering opening these bank accounts, there is no easy answer to this question, as it will depend entirely on your preferences, personal circumstances and savings goals. However, there are a few things to consider that will help you make a decision.
Do You Need Regular Access?
A savings account is designed for excess funds that you don’t need for your day to day expenses, but there will be times when you want to access the funds to pay for an unexpected expense or when you reach your savings goal. However, the frequency of those withdrawals will help you determine which type of account is best for you.
If you will need access to the funds multiple times each month, you may incur a penalty or have other consequences, such as account closure if you have a high yield savings account.
Do You Need Branch Access?
This follows on from the previous point, but if you tend to pay cash into your savings or prefer to deal with all your banking activities in a local branch, this may be an important consideration for you when choosing new bank accounts.
As we discussed earlier, while there are some exceptions, most high yield savings accounts are online only. This means that you need to do all of your banking through the secure website or app. If you run into any problems, you would need to use the website chat bot or email to speak to the support team.
If you want to pay funds into an online account, you need to initiate a transfer from another bank account. So, if you have cash for your savings, you would need to pay it into your regular checking account and then transfer the funds across. This would create a delay and can be a little frustrating, particularly if you tend to deal in cash regularly.
Are There Perks From Your Existing Bank?
While you may not get as high an APY if you open an account with your existing bank, linking a savings and checking account can offer some benefits or perks. Some banks offer relationship rates if you hold linked accounts or you may find that account maintenance fees are waived. You may also be able to use your savings account for overdraft protection on your checking account. This means that if a bill or other expense would take your checking account into overdraft, the funds are automatically moved across from your savings account to cover the charge. This helps to minimize fees and you won’t incur penalties from the bill company. Considering overdraft fees can be an average of $35 per transaction, this could add up to savings of hundreds of dollars.
Another interesting feature that may be available if you have both a checking and savings account with the same financial institution is round ups. This involves “rounding up” your debit card charges to give your savings fund a little boost. For example, say you use your debit card to make a purchase for $4.87, $5 will be billed to your checking account and the 13 cents difference is added to your savings fund. While you’re unlikely to notice these small amounts, if you frequently use your debit card, you could boost your savings without impacting your day to day spending.
Are There Account Fees or Minimums?
Next you need to assess whether there are any fees associated with the account or if there is a minimum balance requirement. If you’re considering a high yield account, but you need a minimum amount to open the account, you may need to compromise and have a regular savings account to raise the funds needed to open the high yield account.
Also, in an ideal world, the account should have no maintenance fees. Even a small fee of $5 a month could quickly eat into your savings. If you can only afford to save $50 a month, you would be losing 10% of your savings in fees! The fees will also offset the interest you can earn on your account balance. So, if a high yield account is offering a great rate, but there are monthly fees, you will need to do a little math to work out whether it is the best option for you.
For example, if the account fee is $5 per month, that adds up to $60 per year. So, if you will have an account balance of $1,000, you would need to earn 6% APY before you actually “earn” any interest on your month. In this scenario, you are better opting for an account offering a lower rate but with no fees.
Does the Account Have FDIC Protection?
Finally, before you make a final decision about an account, be sure to check that your funds are protected with FDIC insurance. This is federal protection that ensures that you can recover your account funds should the financial institution fail. There are protection limits, but since these offer up to $250,000 of coverage, it should be sufficient for most savers.
You can check if the financial institution is a member of the FDIC protection scheme by looking for the FDIC icon on the website and product materials.
Alternatives to Regular Savings and High Yield Savings Bank Accounts
If you don’t need immediate access to your funds, there are some alternatives to regular and high yield savings accounts you may want to consider.
The most common option is a CD. CDs or certificates of deposit are savings products that allow you to lock in your rate for a set period of time. You will make an initial deposit to open the account, but you cannot add more funds or access the money until the account matures. The maturity date is determined when you open the account and it can vary from as little as one month to several years.
If you do need some or all of your funds before the CD matures, you are likely to incur an early withdrawal penalty. This could negate some or all of the interest you’ve earned on your funds, so it is best avoided. However, there are some no penalty CDs, which allow you to access your funds at any time with no withdrawal penalties.
The main advantage of CDs is that you can access higher APYs as a reward for tying up your funds for a set amount of time. When the CD matures, you will have the option to withdraw the money or set up a new CD. Essentially, this means that you can lock in your rate for a predetermined period. So, even if the rates in the marketplace are falling, you will still earn the advertised rate for the entire CD period. But, this does mean that if rates increase, you could miss out on earning more interest.
Another alternative type of account is a money market account. These are not as widely available as regular or high yield savings accounts, but they do offer greater accessibility and flexibility. Typically, money market accounts offer ATM or debit cards, check writing, bill payment and more. The APYs for these accounts is typically on par with a high yield savings account, but you are more likely to incur monthly service fees.
| Alternative Account Type | Interest Rates | Liquidity | Minimum Deposit | Risk Level | Pros | Cons |
|---|---|---|---|---|---|---|
| Certificates of Deposit (CDs) | Fixed, often higher than savings accounts | Low – Funds are locked for a set term | Varies, often $500 or more | Low | Guaranteed return, higher rates for longer terms | Penalties for early withdrawal, less flexible |
| Money Market Accounts | Higher than regular savings, lower than CDs | Moderate – Limited withdrawals per month | Varies, often $1,000+ | Low to moderate | Higher interest rates, check-writing privileges | Higher minimum balance, limited access to funds |
| Treasury Bonds | Varies, typically lower than CDs but stable | Low – Fixed term, interest paid periodically | $100 or more (varies) | Low | Safe, backed by the government, predictable returns | Low returns, funds are tied up for long periods |
| Peer-to-Peer Lending | Can be high, depending on the platform | Moderate – Varies by the loan agreement | Varies | High | Potential for high returns, diversify portfolio | Risk of borrower default, platform reliability issues |
| Robo-Advisors | Varies, depends on the investment portfolio | Moderate – Can withdraw anytime, but invested | Varies, typically low | Moderate to high | Automatic investing, diversified portfolios | Market risk, management fees |
| Cash Management Accounts | Higher than regular savings, varies by provider | High – Flexible withdrawals | Varies, often no minimum | Low | High liquidity, often linked to brokerage accounts | Can have fees, rates may vary |
| High-Yield Checking Accounts | Often higher than regular savings | High – Funds accessible anytime | Varies, often $100+ | Low | Higher interest rates than regular checking/savings, easy access | May require a higher balance for best rates |
FAQs
What is the Main Advantage of High Yield Savings Accounts?
The most attractive reason to open a high yield savings account is that you can access higher interest rates. Typically, the APY for high yield bank accounts is several times more than the rates offered with regular savings accounts.
How Do High Yield Savings Accounts Work?
High yield savings accounts work in the same way as a regular savings account. You can transfer funds into the account regularly and withdraw money as you need it, up to any withdrawal limits. However, as the name suggests, you can earn a higher yield on your funds, so you can grow your savings more quickly.
Is a High Yield Savings Account Safe?
Yes, these accounts are safe provided that you choose a reputable financial institution that offers FDIC protection. If you’re using a credit union, there is NCUA protection. This is similar to FDIC coverage, with the same protection limitations. So, be sure to confirm the bank or financial institution is insured.
Additionally, you should choose a financial institution that has 24/7 account monitoring, real time alerts and two factor authentication, to ensure top notch account security.
How Often Do Rates Change for Savings Accounts?
Whether you choose a regular or high yield savings account, the interest rates are typically variable, which means that they can change at any time. Generally, banks adjust their rates when the Federal Reserve committee meets and determines a change to the federal funds rate. You should receive a notification of a rate change and when it will be applied to your account.
Can I Access the Money Anytime if I Have a High Yield Savings Account?
You should be able to access your savings at any time, but some financial institutions limit the number of withdrawals you can make each month. So, if you make more withdrawals, you may incur a fee or other penalty for subsequent withdrawals.
Additionally, many high yield savings accounts do not have an associated ATM card, so you would need to transfer the funds into another bank account.
What’s the Requirements to Open High Yield Savings Accounts?
As with any type of bank account or financial products, you will need to provide your basic information including your full name, address, contact details and your Social Security Number. You will also need to support your account application with a government issued ID to confirm your identity and a utility bill to confirm your address. This could be submitted electronically or presented at the branch when you open your account. If you’re not a US Citizen, you may need to provide additional documentation to confirm your identity.
With so many different bank accounts available in the marketplace, choosing the right account for you can seem a daunting decision. However, if you’re looking for a low risk, accessible account, either a regular savings account or high yield savings account could be a good fit. Since these accounts offer vastly different returns, it is well worth taking a little time to research your options, so you can decide which one best suits your preferences, financial circumstances and requirements.
