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Inflation hits 8-month high — but my savings rate is higher. Here's how.
Yahia Barakah August 29, 2025 at 4:25 PM
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Are high-yield savings accounts worth it? (Westend61 via Getty Images)
I'm seeing more and more people worry about where to put their money right now, and honestly, I get it. Inflation keeps rising, hitting 2.9% in August — the highest it's been since January 2025. At the same time, the Federal Reserve appears ready to cut interest rates when it meets on September 16 and 17.
If you're keeping cash in a regular savings account at a big bank, you're watching your money lose value every month. But are high-yield savings accounts (HYSAs) any better, considering the upcoming rate cut?
The short answer is yes. Many high-yield accounts still offer around 4% APY, which means your money grows faster than prices rise. When the Fed cuts rates, these HYSA APYs will drop too, but they'll still be well ahead of traditional savings accounts.
You might not get rich off the extra percentage point above inflation, but you'll at least break even instead of losing ground. Your money keeps its purchasing power while staying completely accessible — no locking it up in CDs or long-term investments. When the alternative guarantees you'll lose value each month, HYSAs become an easy choice.
Are high-yield savings accounts worth it? My real-life HYSA experience
I was skeptical when I first heard about high-yield savings accounts. My traditional savings account paid 0.01% APY, so how could other savings accounts pay 4.00% APY — 400 times the interest I was getting?
HYSAs aren't magic, just a smarter way to save and grow your money. These accounts typically come from online banks and credit unions that don't have the high operational expenses that big banks deal with. So they pass along these overhead savings in the form of higher APYs.
How much more can I earn with an HYSA?
Online banks constantly adjust their competitive positioning regardless of Fed decisions. My SoFi HYSA currently offers 3.80% APY, while my Wealthfront Cash Account sits at 4.00% APY — both dramatically outperforming the 0.01% typically offered by major traditional banks. These rates fluctuate based on market conditions, but their value proposition remains strong.
Here's how much I'd earn on a $10,000 balance in a high-yield account compared to a traditional account after one, three and five years:
$10,000 at 4.00% APY
$10,000 at 0.01% APY
After 1 year
$400
$1
After 3 years
$1,249
$3
After 5 years
$2,167
$5
This means I'd earn $400 for each $10,000 in this HYSA compared to just $1 in a traditional account. Over five years, that's $2,167 versus $5. This includes compound interest on both your deposit and accumulated earnings.
Online banks compete aggressively for deposits, especially as September rate cuts approach. Some may keep rates attractive longer than others, creating opportunities to switch accounts and maximize returns — something impossible with traditional banks' uniformly low rates.
My APY will eventually drop from 4.00%, but even if rates fall to 3.00%, the math still works in my favor:
$10,000 at 3.00% APY
$10,000 at 0.01% APY
After 1 year
$300
$1
After 3 years
$927
$3
After 5 years
$1,593
$5
Learn more: How the Fed rate affects your savings
Real-life interest earnings from high-yield savings
I began earning monthly interest payments of as much as $140 per month after moving my money to an HYSA. My bank determined the amount of each payment based on my balance every day of each month. That's why banks typically describe APY earnings as daily compounding.
Wealthfront's interest payment in August 2025 (Wealthfront)
On top of these earnings, my high-yield savings account came with no monthly maintenance fee. This was the cherry on top, since my traditional savings account charged me $6 every month that I didn't maintain my balance above $500.
Learn more: High-yield savings vs. traditional savings
How do high-yield savings accounts work?
Banks use your deposits, including those in high-yield savings accounts, to fund the loans they give out. Your bank earns interest from these loans and shares a portion of it with you.
Let's say you deposit $10,000 into a savings account, whether a traditional or high-yield account. Here are three steps that happen behind the scenes:
No loan is free. Banks charge one another interest for these short-term loans. The interest rate they charge is influenced by the Federal Reserve, the U.S. central bank. When the Fed raises rates, it increases the interest a bank earns when it lends out money to another bank.
Banks use their earnings on operating costs. Banks typically use the money they earn from their loans, fees, foreign exchange and more to cover employee salaries, brick-and-mortar branches and other operating costs.
Banks share more with you. Most banks pass along a portion of their profits to you. Yet while many traditional banks provide APYs of 0.01% on your savings, online-only banks can afford to pay out much higher yields on their digital savings accounts.
Online banks and credit unions maintain higher rates during changing Fed policies thanks to their streamlined operations and lower overhead costs. They use these attractive rates as their primary customer acquisition strategy, creating intense competition for deposits. This competitive environment benefits savers the most during periods of economic uncertainty – exactly when maximizing your returns matters most.
Are high-yield savings accounts safe?
Most high-yield savings accounts are protected by the same insurance you get with traditional savings accounts.
This insurance from the Federal Deposit Insurance Corporation (FDIC) covers your money against bank failure for up to $250,000 per depositor and ownership category. This means that you get up to $250,000 coverage for your personal account, a separate coverage up to $250,000 for your joint account and so on.
If you open your HYSA with a credit union instead, you'll typically receive insurance from the National Credit Union Administration (NCUA) that protects your money for up to $250,000 per depositor and ownership category.
That said, you want to take care not to keep more than $250,000 with any one bank to avoid exposing your money to loss. The simplest way to protect your excess money is by moving it to a new account at a different FDIC-insured bank (though there are several ways to extend FDIC insurance coverage to protect excess deposits, depending on your circumstances.)
Learn more: Can you lose money in an HYSA? It's unlikely — but here's what to watch for
Do you pay taxes on a high-yield savings account?
Yes. The IRS considers the interest you earn on HYSAs and other deposit accounts taxable income, which means you must report it on your tax return.
So how do you know how much interest you earned? At the start of every tax season, your bank sends a form 1099-INT, which details the interest you earned in the previous year. The IRS taxes this interest based on my tax bracket. For example, if I'm in the 22% tax bracket, I would pay 22% on my interest income.
Your total taxable income determines your tax bracket. Here's a simple way to find out the tax bracket you're in.
2025 tax brackets
Tax rate
Single
Married filing jointly
Head of household
10%
$0 to $11,925
$0 to $23,850
$0 to $17,000
12%
$11,926 to $48,475
$23,851 to $96,950
$17,001 to $64,850
22%
$48,476 to $103,350
$96,951 to $206,700
$64,851 to $103,350
24%
$103,351 to $197,300
$206,701 to $394,600
$103,351 to $197,300
32%
$197,301 to $250,525
$394,601 to $501,050
$197,301 to $250,500
35%
$250,526 to $626,350
$501,051 to $751,600
$250,501 to $626,350
37%
$626,351 or more
$751,601 or more
$626,351 or more
Source: IRS
If you use software to file your taxes, it'd usually prompt you to upload your 1099-INT form or enter information from specific fields on it. On the other hand, if you hand your information to a tax preparer, they should be able to add your interest income to your tax filing.
Learn more: Best tax software for 2025: Low-cost and premium options to maximize your return
How to open a high-yield savings account
Opening my first high-yield savings account was as simple or even simpler than setting up a traditional bank account. That's because most HYSAs offer online applications without requiring a branch visit.
Here are the steps you'd typically follow:
Apply online. Once you have an HYSA in mind, start your account application with such personal information as your Social Security number and driver's license or other government-issued ID.
Verify your identity. Some banks may require you to enter a code sent to your mobile number or to upload an image of your ID. This is to confirm you are who you say you are.
Fund your account. Choose how to make your initial deposit. The most common option is a transfer from another bank account, though some HYSAs allow for deposits by debit or credit card.
Set up online access. Don't forget to set up online access through your browser or the bank's app on your phone after you receive an account approval. This will make it easy to transfer money in and out of your account.
Learn more: How to find and open a high-yield savings account
Benefits of high-yield savings accounts -
Higher yields on your savings. HYSAs pay out higher rates on your money that are typically well above the national average. This increases your monthly interest payments. It's like your money works harder, so you don't have to.
Minimal fees. Many banks that offer HYSAs charge no monthly fees. Some even reimburse you for ATM fees and minimize other fees, like those you might pay for overdrafts. This is, in part, thanks to lower operating costs than traditional banks.
FDIC insurance. Most HYSAs are protected by FDIC insurance for up to $250,000 per depositor. Some even go well beyond this limit — for example, SoFi Savings offers up to $2 million in FDIC insurance.
Learn more: How to make sure your bank is FDIC-insured — and what to watch for with nonbanks
Drawbacks of high-yield savings accounts -
Variable APYs. The APY you earn today on your HYSA can go up or down based on market conditions. For example, a rate cut from the Federal Reserve may reduce the rate you earn, while a rate hike — although unlikely — may increase it.
Limited branch access. Many HYSAs operate completely online, without the in-person branch support you might be used to. However, most digital banks offer reliable phone and chat support. Some even offer debit cards and ATM fee reimbursements to compensate for the lack of a brick-and-mortar experience.
Other smart places to park your cash
High-yield savings accounts work great for most people, but maybe you want guaranteed returns that won't fluctuate with Fed decisions, prefer check-writing privileges, or have a larger sum you won't touch for months. Here are several alternative options for earning decent returns on your money:
Certificates of deposit. CDs let you lock in today's rates for a guaranteed return over a specific time period, protecting your rate from dropping even if the Fed cuts rates. Consider options like Bread Financial's multi-term CDs, Valley Bank's higher rates for longer terms or Alliant Credit Union's solid returns. For flexibility, CIT Bank's no-penalty CDs let you withdraw early without fees.
Money market accounts. MMAs are the middle ground between checking and savings accounts. They often pay competitive rates similar to high-yield savings but come with check-writing privileges and debit cards. You'll typically need higher minimum balances, though. Some options worth exploring include Sallie Mae Money Market Account and Ally Money Market Account.
Money market funds. These investment funds pool your money with other investors to buy short-term, low-risk assets. You can access them through platforms like Robinhood, SoFi Invest or Public, and they often yield similar returns to high-yield savings while offering more liquidity than CDs.
High-yield checking accounts. A few banks and credit unions offer checking accounts with savings-level interest rates. Consumers Credit Union Rewards Checking rewards your deposits with high yields when you receive $500 in monthly electronic transactions and make a minimum number of debit card purchases every month. The convenience of having everything in one account can be appealing, but make sure to stay on top of those monthly requirements.
More stories about banking, investing and growing your money -
Top banking mistakes that could be costing you money
How to automate investing with robo-advisors
How to use dollar-cost averaging to simplify investing
Is gold a good investment? Pros, cons and when it makes financial sense
High-yield savings accounts vs. CDs: What smart savers as rates hold steady
FAQs: HYSAs, your money and growing your wealth
Still not convinced a high-yield account is best for your savings? These commonly asked questions can help. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.
How often can I withdraw money from a high-yield savings account?
While many banks used to limit withdrawals from high-yield and other savings accounts to six a month, the Federal Reserve suspended that limitation during the pandemic, resulting in more flexible access to your money without penalties or fees. That said, I've come across charge fees for excessive withdrawals — for instance, the Ally Savings Account limits withdrawals and transfers to 10 a month. Review your account's fine print for the allowed number of withdrawals and any penalties for exceeding the limit.
How much should I keep in a high-yield savings account?
Financial experts generally recommend that you keep an emergency fund that can cover three to six months' worth of necessary living expenses in a readily accessible account, such as a high-yield savings account. However, you don't want to keep so much in your account that you're sacrificing higher returns elsewhere. Learn more about how to find that savings sweet spot in our guide to finding the best balance for your HYSA.
Can I have more than one savings account?
Yes, you can have more than one savings account. While some banks may limit you to one account, you can always open new accounts with other banks. This can help you spread your money, benefit from different perks each bank offers and even access more FDIC coverage. Stay on top of banking benefits, products and news to find what works best for you.
What are the benefits of a joint bank account?
Joint bank accounts can be a powerful tool for anyone looking to streamline their financial lives and work together toward common goals, with benefits that include more seamless money management, more flexible access in an emergency and more FDIC insurance coverage. Still, joint account holders are responsible for each other's financial decisions, which could provide room to pause. Learn whether joint banking is right for you in our guide to the pros and cons of joint accounts.
Sources -
Consumer Price Index, U.S. Bureau of Labor Statistics. Accessed September 11, 2025.
Federal Funds Effective Rate, Federal Reserve Bank of St. Louis. Accessed September 11, 2025.
CME FedWatch Tool, CME Group. Accessed September 11, 2025.
About the writer
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.
Article edited by Kelly Suzan Waggoner
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