What Is a High-Yield Savings Account?
Savings accounts are saving products offered by banks, credit unions, and other financial institutions that pay interest on your account deposits. High-yield savings accounts offer above average Annual Percentage Yields (APYs) on cash desposits, which rewards savers with these accounts.
How much you earn in a savings account depends on your initial deposit amount, APY, compounding frequency, and how often you contribute to your savings account. You can harness the power of compounding interest to boost your net worth.
Try our plug-and-play high-yield savings calculator to see how much you might earn.
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Quontic High Yield Savings Account
Smart Money Rating: 5/5
APY: 4.50%
Required Minimum Balance: $100
High-Yield Savings Account Calculator
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High-Yield Savings Calculator
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Primis Checking Account
Account Type: Free Checking Account
Required Minimum: $1 to Open
Bonus Offer: Earn 50 Cents for Every Purchase
When to Open a Savings Account
Here are three scenarios where you might need to open a savings account:
- Regular Savings: If you have monthly disposable income, putting a considerable part into a savings account can be a smart money move. Storing excess cash in a high-yield savings account can translate into earning passive income through interest income. (Read more about How Much You Should Save).
- Emergency Fund: Financial experts advocate having at least $1,000 to $3,000 stashed in a savings account. Savings in an emergency fund mitigates against unforeseen emergency expenses. An online high-yield savings account can be a great place for these funds.
- Slush Fund: Beyond saving your emergency fund, personal finance experts evangelize the benefits of a slush fund. A slush fund is a savings account with at least three to six months of living expenses saved.
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Axos Bank® Rewards Checking
Smart Money Rating: 5/5
APY: 3.30% with No Minimum Balance
Bonus Offer: Up to $500 Bonus (Terms Apply)
Advantages of Interest Income
- Creates Passive Income: Fixed-income investors gravitate toward holding a portion of their portfolios in interest-generating investments, like a high-yield savings account. Although interest rates are not fixed, like in a certificate of deposit, investors can generate passive income. (Read more about 9 Ways to Earn Passive Income).
- Offsets Expenses: Using a high-yield savings account can reduce the burden of high costs. Interest income can help you pay monthly bills like groceries, transportation, and rent. (Read more about 16 Budgeting Tips Anyone Can Follow).
- Protects Against Inflation: Inflation is the rising costs of goods and services. During rising inflation, interest income can protect your investments and purchasing power. (Read more about 26 Smart Ways to Beat Inflation).
- Accelerates Financial Freedom: According to FIRE advocates, you achieve financial freedom when your monthly interest income exceeds your monthly expenses.
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Where to Report Interest Income?
If you invest in a high-yield online savings account, you will earn interest income. When you fill out your annual federal tax returns, you must report interest income as part of your total taxable income.
- 1099-INT: If you earned $10 or more in interest income, you will be issued a 1099-INT.[1] Banks, credit unions, and financial institutions will issue you a 1099-INT for you and the Internal Revenue Service to report your taxable income by January 31 for the previous year’s interest.
Read More: Best Online Tax Reporting Software Programs
(1) Internal Revenue Service. About Form 1099-INT, Interest Income. Last Accessed January 12, 2025.
