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What Is a High-Yield Savings Account?

As the name implies, "high yield" means that a savings account offers an interest rate that can be higher than the typical savings account rate. With a higher rate, and compound interest, your savings grow faster than they would with a regular savings account.

In this article, we'll explain how a high-yield savings account could work for you, some things to consider before opening one, and options available to you at TD Bank.

Benefits of a high-yield savings account

A high-yield savings account gives you a chance to grow your money faster, but there’s more to it than that. Let's build our financial literacy and look into the advantages of high-yield savings account.
 

Higher interest rates and APY

You'll hear banks touting not only their interest rate on savings, but also the annual percentage yield, or APY. The interest rate is what the bank is offering in return for your keeping your money there. The APY calculates how much your savings will grow over a one-year period.

Make sure the bank you choose is insured by the FDIC (Federal Deposit Insurance Corporation), which covers $250,000 per depositor, per insured bank per account category.
 

Effortless savings

High-yield savings accounts are great for "set it and forget it" saving. You can direct a portion of your salary toward a high-yield account and let it grow, enjoying the peace of mind that it will be safe.
 

Long-term financial goals

A high-yield savings account can play a role in your financial planning for the future. According to calculations from the U.S. Securities and Exchange Commission, here’s how $10,000 of savings would grow at a 0.5% APY vs. a 5.0% APY. This is just a hypothetical example that assumes the interest compounds daily and the interest rate doesn’t change. 

Considerations of high-yield savings accounts

Before opting for a high-yield savings account, do some homework and keep these factors in mind.

  • A high-yield account may not be ideal for short-term savings. Benefits from compound interest at a higher APY can take time. Yes, you can gain access to the funds anytime, but frequent withdrawals may eat away at returns
  • Make sure you can meet account minimums and required balances. When comparing this type of savings account from different banks, check on the minimum balances and whether there are any fees if you fall below that. Also check to see how much the required balances are to achieve the highest rates
  • Interest rate and APY can fluctuate. Unlike certificates of deposit, which have fixed returns, rates on high-yield accounts can go up or down based on what the Federal Reserve does. After the Fed raises its rate, financial institutions tend to pay more interest on high-yield savings accounts to stay competitive and attract deposits. Conversely, after the Fed lowers its rate, banks tend to lower their deposit account rates
  • Be sure to ask about account fees and monthly limitations. High-yield savings accounts may have monthly maintenance fees associated with them. Usually, these fees can be waived with a minimum daily balance or linked checking account. Before opening an account, ask for a complete schedule of fees, as well as any limits on deposits or withdrawals

How do high-yield savings accounts work?

Now let's review the basics of how high-yield accounts work to help you build financial security.

Understanding APY

Remember that APY stands for annual percentage yield. It factors in the interest rate and the effects of compound interest to represent the actual amount of money your account will earn over a one-year period. If you incur any fees, however, that will chip away at your APY.
 

The power of compound interest

Compound interest is what fuels the annual percentage yield. Most banks compound interest daily, so you're not only earning a certain percentage on the original investment, but also on the subsequent earnings. Every. Single. Day. That's why it makes sense to keep money in a high-yield account for a year or more without touching it.

Relationship rates

A bank wants you to have as many accounts as you need to manage budgeting, asset allocation, and an emergency fund. All those accounts add up to a personal finance relationship.

Some banks offer what are called "relationship rates" to existing customers, meaning that the more business you do with the bank, the better interest rates and APYs you may be eligible for.
 

Tiered rates

A tiered-rate account is a bank account with different interest rates and APYs assigned to different balance ranges. The rate increases as the balance rises to certain levels. You often find tiered rates on high-yield savings accounts, but they are also a feature of some money market accounts, certificate of deposit (CD) accounts, and interest-bearing checking accounts. If you're lucky enough to be able to put a significant amount of money into a high-yield account, be sure to ask for the highest tiered rate available

High-yield savings account options at TD Bank

For the consumer with significant savings needs, TD Signature Savings offers a tiered APY (check current rates) and an eligible linked TD account—personal or small business checking, mortgage, home equity loan or credit card.1

Other features and benefits:
 

  • No TD ATM fees when you use non-TD ATMs, regardless of balance, and reimbursement for other banks' surcharges when you maintain a $2,500 minimum daily balance2
  • Free incoming wire transfers, official bank checks, money orders, and stop payments
  • Waive the $15 monthly maintenance fee by keeping a $10,000 minimum daily balance or linking an eligible TD checking account3
  • Savings Overdraft Protection4 automatically transfers cash from your linked savings account to cover an overdrawn checking balance

Learn more about TD Bank's Signature Savings by visiting one of our local stores or calling a TD banking specialist 24/7 at 888-751-9000. You can also open an account online—it's fast and easy.

1TD Signature Savings: Enjoy a relationship bump rate when you link an eligible account, which includes a TD Bank personal mortgage, home equity or credit card OR an active personal or small business checking account WITH at least three Customer-initiated deposit, withdrawal, transfer or payment transactions posted each calendar month OR an active personal or small business checking account WITH a direct deposit each calendar month. See the Personal Deposit Account Agreement for more details.

2For TD Signature Savings accounts, TD fees waived regardless of balance, and non-TD fees, which includes any surcharges at the time of your transaction, will be reimbursed when the minimum daily balance in the TD Signature Savings account is at least $2,500. The institution that owns the terminal (or the network) may assess a fee (surcharge) at the time of your transaction, including balance inquiries.

3Eligible accounts include: TD Beyond Checking, TD Complete Checking and Relationship Checking.

4Savings Overdraft Protection transfer initiation is automated at end of the Business Day when the pending and posted transactions result in an overdraw balance. You may still be assessed an Overdraft fee ($35 max of $105 per day per account) if the transfer could not be made such as; if there is not enough money in the linked Savings or Money Market account to cover the overdrawn balance or if you manually transfer the money after overdrawing your account and your transfer is insufficient to cover the overdrawn balance.