A savings account can be an important aspect of your financial life. It typically lets you earn some interest while safely storing funds you might need for emergencies or big expenses, such as down payment on a house, a vacation, a wedding, or a new car.
A traditional savings account at a local bank or credit union can be convenient and offer in-person help, but a high-yield savings account — often available from online-only banks — will often earn you a higher interest rate and lower fees. That can help your money grow faster. Read on to take a closer look at these two different kinds of savings accounts.
Understanding High-Yield Savings Accounts
A high-yield savings account (HYSA) pays out significantly more interest than a typical savings account. While there’s no regulated savings account definition for high-yield savings accounts (also called high-interest savings accounts), these accounts usually earn a considerably higher interest rate than standard options.
How high? That depends. As of August 2024, the average interest rate for a traditional savings account was 0.45% APY as of October 21, 2024, while some HYSAs pay out 3.00% APY or more in interest. That means you could be earning six times more with an HYSA than a traditional account.
Online banks and credit unions commonly offer high-yield savings accounts, though it is possible to find HYSAs at brick-and-mortar banks. It’s worth noting that these accounts usually have many of the features of traditional bank accounts, such as FDIC (Federal Deposit Insurance Corporation) insurance up to $250,000 per account holder, per account ownership category, per insured institution. If offered by a credit union, the account will likely have similar insurance via NCUA, or the National Credit Union Administration.
Earn up to 4.20% APY with a high-yield savings account from SoFi.
No account or monthly fees. No minimum balance.
9x the national average savings account rate.
Up to $2M of additional FDIC insurance.
Sort savings into Vaults, auto save with Roundups.
What Is a Traditional Savings Account?
Traditional savings accounts are just that — the traditional savings account that has been around for decades and is typically offered at financial institutions with brick-and-mortar branches. These offer all the benefits of a savings account, including interest, insurance, and accessibility. Traditional savings accounts don’t pay as much interest as a HYSA, but they may have other advantages. They might have lower or no minimum balance requirement vs. some HYSAs, and they may be a good option for those who like going into a local branch and getting one-on-one assistance with banking matters.
You’re more likely to find a traditional savings account at a local bank or credit union, rather than online, meaning accessing your funds may be more convenient, in some instances.
And if you have a traditional checking account, opening a traditional savings account with the same bank can be convenient.
Key Differences Between High-Yield and Traditional Savings Accounts
Here’s how these two different types of savings accounts (high-yield savings vs. traditional) compare.
Interest Rates Comparison
As the name implies, a high-yield savings account has a higher yield than a traditional savings account. That means these accounts earn more — sometimes significantly more — interest than savings accounts at traditional banks, as noted above.
Accessibility and Convenience
Traditional banks may be more convenient if you regularly need to deposit cash, simply because it’s more likely that a traditional bank has local branches. However, there’s a good deal of flexibility here. Online banks with HYSAs often offer large networks of ATMs for withdrawals and deposits, and some brick-and-mortar banks offer high-yield savings accounts.
Traditional bank accounts may be more convenient if you already have a checking account at a specific bank. However, many online banks offering HYSAs also offer checking accounts — sometimes even high-yield checking accounts. This can make it easy to transfer funds back and forth as needed.
Fees and Minimum Balance Requirements
High-yield savings accounts come with varying fee structures. With accounts offered by online banks, you may find no fees. However, with accounts at traditional banks, you may be more likely to pay fees. Often, however, there are requirements at financial institutions to qualify for a HYSA, such as a minimum direct deposit amount or maintaining a minimum balance.
It can be wise to shop around and see what both traditional banks and online ones offer.
Pros and Cons of High-Yield Savings Accounts
High-yield savings accounts offer several advantages, but there may be some drawbacks to consider.
Pros of HYSAs
• High interest rate: The major draw of a high-yield savings account is the interest rate. You’ll earn significantly more money on your savings deposits, so your money can grow faster.
• Security: High-yield savings accounts should offer the same FDIC or NCUA insurance on all your deposits that you would get with a traditional savings account.
• Account features: Many online banks with high-yield savings accounts offer additional features that might help you save more money, like automatic savings tools with a linked checking account.
• No fees: Depending on where you open a HYSA, you may not have to pay fees. This can be especially true with accounts held at online banks.
Cons of HYSAs
• Less earning potential than other types of accounts: While HYSAs offer more interest than a traditional savings account, you might be able to earn even more with a money market account, certificate of deposit, retirement account, or investment in stocks and bonds. However, those options are less liquid, and some are riskier — so you’ll have to see which works best for your financial needs and money style.
• Less likely to have in-person banking: Many banks and credit unions offering high-yield savings accounts are online-only. If you prefer in-person banking, this might not be the right account for you.
• Fees: As noted above, some banks don’t charge fees. However, this varies from bank to bank. Some HYSAs (often those at traditional banks) have fees to contend with, which can erode your earnings.
Pros and Cons of Traditional Savings Accounts
Traditional savings accounts also have their share of pros and cons.
Pros of Traditional Savings Accounts
• Convenience: If you have a traditional savings account with a local branch, it’s easy to access your money.
• Relationship building: If you like in-person interaction when banking and being able to discuss other financial products, like a home loan, in that way, a traditional savings account may suit you well.
• Low fees: Traditional savings accounts typically have low fees — or no fees at all. (This can, however, be true of HYSAs as well, depending on where you bank.)
Cons of Traditional Savings Accounts
• Low earnings: Traditional savings accounts often don’t have significant interest rates. In fact, they typically don’t keep up with inflation over time, which may be true of some HYSAs, as well, depending on their interest rate.
• Liquidity: Money in a savings account is less liquid than money in a checking account. Your bank or credit union may limit how many withdrawals you can make in a month. (This may also be true of HYSAs as well.)
• Access: If your bank doesn’t have a nearby branch and/or doesn’t offer 24/7 online services, you may find it hard to conduct transactions when you want to.
How to Choose the Right Account for You
Ready to open a savings account but not sure which account is right for you? Here are some things to consider:
• Interest rate: Ideally, you should pick a savings account that pays out competitive interest so your money grows faster.
• Liquidity: Some banks let you withdraw from your savings more frequently than others. Think about how often you’ll want to move money to your checking account or withdraw from an ATM.
• Convenience: Choose a savings account that makes it easy to manage your money. For some people, that may mean a traditional savings account at a financial institution with local branches. For others, it may mean a HYSA at an online-only bank that has all kinds of digital tools that suit your needs.
• Fees: Compare fees for savings accounts, and consider choosing one that doesn’t take a bite out of your earned interest.
• Sign-up bonuses: Many banks and credit unions offer savings account bonuses for signing up and meeting certain criteria. This could be an easy way to make extra cash, if you choose the right account.
The Takeaway
There’s no right or wrong answer when trying to decide between a high-yield savings account and a traditional one. Each can deliver an important way to secure and grow your cash. Often offered by online-only banks, HYSAs can help you earn more interest, and some may be fee-free. Traditional accounts typically don’t pay as much interest, but some people may enjoy the convenience of having local branches for conducting financial transactions.
Looking for an HYSA? See what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What is the main advantage of a high-yield savings account?
The main advantage of a high-yield savings account is the higher interest rate. HYSAs earn significantly more interest than a traditional savings account, meaning you can make good money just for keeping your money safely stored in a bank.
Are high-yield savings accounts safe?
Yes, high-yield savings accounts are safe. You should expect the same level of FDIC or NCUA insurance for your deposits as you would with a traditional savings account, though you should always confirm that your bank is insured. Also look for a bank that offers 24/7 account monitoring, two-factor authentication, and real-time alerts.
How often do interest rates change for high-yield savings accounts?
Interest rates on any type of savings account are variable and can change at any time. However, banks typically adjust rates after the Federal Reserve committee meets and changes the federal funds rate.
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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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