FINANCIAL FRESHMAN #051
TL;DR → Many people get stuck using the same bank that they have always used, just because it’s familiar. HYSAs, on average, will earn you 10x the interest when compared to traditional savings accounts. If you’re willing to deal with some small sacrifices, consider parking most of your cash in a HYSA instead.
Rethink Your Savings
Allow me to take you back to when you got your first job. It wasn’t anything glamorous…maybe you were waiting tables, washing dishes, or scooping ice cream. It was a way for you to make some spending money of your own in high school, and it got the job done.
When you think back to this period, this probably marks the time when you had to get a bank account of your own. Along with your job came direct deposits, which meant you needed a landing spot for that money.
“What bank did you go with?”
Well, you were a minor. So you probably went with whoever your parents happened to bank with at the time. Here lies the problem.
Banking Exchange recently published an article highlighting that, on average, folks may keep an account with the same bank for upwards of 26 years. Why the stability?
“Well, it’s the account we’ve always had. And there’s nothing wrong with it.”
True, but what if you want to earn 10 times more on your idle cash? Sounds scam-y, but this most certainly isn’t. This is where the High-Yield Savings Account (or HYSA) comes into play.
What Is a HYSA?
A HYSA is a savings account with…you guessed it, a higher interest rate. But how much higher, exactly? And how are some banks able to offer such a significantly higher rate?
According to data from the FDIC and Bankrate, we can quickly glean the significant difference in interest rates between traditional and high-yield savings accounts. You’re talking 0.42% compared to 4%, on average. Let’s take a look at the hypothetical ten year growth of $1,000 parked in each of these two average-performing accounts. I used the compound interest calculator on Investor.gov to generate these graphs ($1,000, no monthly contribution, 10 years, no rate variance, compounding monthly).
With our traditional savings account, we earn a whopping $43 over our decade. What a treat—don’t spend it all in one place.
In our HYSA earning 4%, that same $1,000 grows to $1,490.83! An extra $448 in your pocket, with no changes other than banking with someone else.
Under the hood, these two types of savings accounts are fundamentally identical. Both account types are going to be safe, FDIC-insured, and liquid. To understand why some savings accounts can offer such significantly higher rates, you have to take a step back and consider the customer bases and business models.
When you put the two side-by-side, it becomes clear that certain consumers may prioritize a physical presence over the interest rate itself. There’s also the abrasion associated with changing banks that we discussed, as the easiest bank to do business with is the one that currently holds all your money already.
What’s The Catch?
Changing banks and immediately earning 10x more on your money may sound too good to be true, but we promise it’s not. That being said, there are some (small) sacrifices worth noting.
Before moving your money from a traditional savings account to a HYSA, you should be mindful of the following:
- You likely won’t have a physical bank to go to regarding this account, which will cause you to lose some service offerings. You obviously can’t withdraw cash from an online-only HYSA, and you potentially won’t be able to write a check or wire funds either. As American Express states on their website, a HYSA is not designed for everyday spending. To do these things, you’d have to transfer the funds to your everyday checking account first, most likely.
- These transfers will likely take 1-3 business days, in lieu of the potentially instant transfers you’ve been accustomed to.
- As the Federal Reserve manipulates interest rates, the interest rate associated with your HYSA will change too. The rate you have when you first open the account will (very likely) be different in a few months, for better or for worse.
Hopefully it is abundantly clear that these sacrifices are entirely manageable, and that parking your savings in a HYSA is still a great decision overall.
How Do I Find One?
The good news is that choosing a HYSA is not rocket science. Since these accounts are largely similar, you are really choosing between a handful of details that matter most to you. Here are some best-practices to keep in mind:
- Look for FDIC insurance, an ensure the insurance will cover the totality of the funds you’ll have in the account.
- Ensure there are no monthly fees, and no minimum balance requirements.
- Look for a competitive interest rate compared to the current market (around 4% as of mid-2025).
- Find customer service testimonies from sites like NerdWallet or Bankrate. In the event that you have an issue, you want to know that someone helpful will be available to support.
- If mobile access is important to you, make sure the provider has an app that you can use for account monitoring.
A few well-known options include Ally, Marcus (Goldman Sachs), Discover, American Express, SoFi, and Capital One.
Final Thoughts
Do some research for yourself, and see if there’s a better option than your bank from high school. If there is, consider moving your emergency fund or starter savings account into a HYSA. The sooner you make this switch, the sooner your money can start working for you while you sleep.
