High-yield savings accounts vs. regular savings accounts: What's the difference?

Savings are an essential part of any financial plan. No matter how well you budget for day-to-day expenses, life has a way of surprising you. A savings account is a safe place to build an emergency fund to cover sudden costs like a home repair or large medical bill. It can also help you set aside money for short-term goals like a vacation or a new car.

The two main types of savings accounts are regular and high-yield savings accounts. Which one is best for you? We break down the similarities and differences below to help you decide.

Start your search for a savings account by comparing savings rates and options here.

Similarities between high-yield and regular savings accounts

Both high-yield and regular savings accounts are covered by FDIC insurance, which protects your deposits of up to $250,000 per account per bank in the event of bank failure. Both accounts allow you to easily access your money when needed, compared to products like CDs, which lock up your funds for a specific period and charge you if you need them before that period is up. 

Most importantly, both regular and high-yield savings accounts earn compound interest. That means each period, you earn interest on your balance plus whatever interest you earned to date. For example, say you have $1,000 in a savings account at 0.37% APY. If interest compounds monthly, you'll earn $0.31 the first month, bringing your balance to $1,000.31. The following month, you'll earn interest on the new balance of $1,000.31, and so forth. As your balance grows, so does your interest, allowing your earnings to snowball without you having to do anything.

Check out current savings rates here to find the best account for you.

Differences between high-yield and regular savings accounts

The main difference between high-yield and regular savings accounts is how much interest you can earn. But that's not the only difference. Consider these factors when determining which type of account to choose.

• Interest rates: The average interest rate for a regular savings account is currently about 0.37%. By comparison, average high-yield savings account rates are in the 3.5% to 4.5% range (or higher). What does that look like for your money? If you put $1,000 in savings and make no additional deposits, you'll earn $3.70 in interest after one year at the regular savings account rate of 0.37%. That same $1,000 in a high-yield savings account would earn $45.00 at an interest rate of 4.5%. And that's just $1,000. Your earning potential grows exponentially based on how much you put into savings.
• Physical locations: Most banks and credit unions offer regular savings accounts. High-yield savings accounts, on the other hand, are typically offered by online banks and credit unions. These institutions don't have brick-and-mortar locations, so you can't talk to someone in person if you need help or have questions. If you're happy to do all your banking online, this won't be an issue for you. But if you prefer face-to-face interaction, a regular savings account may be the better choice.
• Fees: Because online banks don't have the overhead of physical locations, they can pass those savings on to you in the form of lower fees. You'll likely pay less for things like maintenance and overdraft fees with a high-yield savings account than with a regular one.
• ATM access: Some regular and high-yield savings accounts provide ATM cards so you can deposit and withdraw cash. Finding and using an ATM at a traditional bank is easy; doing so with an online bank can be more of a hassle. Since online banks don't have physical locations, they partner with ATM networks to give customers ATM access. It's up to you to look up where these ATMs are, and you may incur a fee for using them. If you often need to deposit cash, a regular savings account may be more convenient.

Start exploring your high-yield savings account options to see how much more you could be earning.

The bottom line

Which type of savings account is best for you depends on your needs. That said, a high-yield savings account is the clear winner for most people. You may not have in-person service options, and accessing an ATM can be a bit trickier, but the additional interest you'll earn can more than make up for that. And now is a great time to open a high-yield savings account. As with any financial product, carefully weigh your options to find the best account for you.