What is the difference between a high-yield savings account and a regular savings account?

A high-yield savings account (HYSA) offers significantly higher interest rates (APY) compared to a regular savings account, often by several percentage points. HYSAs are typically offered by online banks with lower overheads, while regular savings accounts are more common at traditional brick-and-mortar banks. Both are FDIC/NCUA insured.

Are high-yield savings accounts and CDs safe?

Yes, both HYSAs and CDs are considered very safe. They are typically insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions, protecting your deposits up to $250,000 per depositor, per institution, per ownership category.

How much money should I put in a high-yield savings account?

You should keep your emergency fund (3-6 months of living expenses) and money for short-term goals (within 1-3 years) in an HYSA. Any funds you might need relatively quickly, but don't need for daily spending, are suitable for an HYSA.

When should I choose a CD over an HYSA?

Choose a CD if you have money you won't need for a specific period (e.g., 1-5 years) and want to lock in a higher, fixed interest rate. CDs are ideal for mid-term goals where you can commit funds without needing early access, as they usually have early withdrawal penalties.

What is a CD ladder and how does it work?

A CD ladder involves dividing your money into multiple CDs with staggered maturity dates (e.g., 1-year, 2-year, 3-year CDs). As each CD matures, you reinvest the funds into a new, longer-term CD. This strategy provides regular access to a portion of your money while still benefiting from higher long-term rates.

Is the interest earned on HYSAs and CDs taxable?

Yes, the interest earned on both HYSAs and CDs is considered taxable income at the federal level and usually at the state and local levels as well. You will receive a Form 1099-INT from your bank if you earn $10 or more in interest during the year.

High-Yield Savings Accounts & CDs | One Percent Finance