How would you like your savings to earn 20 to 25 times more interest than traditional savings accounts?
Got your attention? I thought so. Let’s say you have US$5,000 in a traditional bank savings account. The national average APY is about 0.55%, which yields only US$27.50 after a year. In contrast, if you deposit that same U$5,000 in an account earning 5.0% APY, you’d earn US$250 over the same period.
This is what we call a High Yield Online Savings Account (HYOSA).
What is a high-yield online savings account?
A high-yield online savings account (HYOSA) is offered by a digital or online-only bank and provides elevated interest rates — often 4% to 5% APY, compared to the ~0.5% for traditional accounts. HYOSAs consistently outperform typical savings and checking accounts.
According to the Federal Deposit Insurance Corporation (FDIC), the average interest rate for a regular savings account is far too low to keep up with the current inflation rate, which is around 3.2% this year.
Online banks can offer higher yields on deposits because they have lower overhead costs. Without the expense of physical branches, tellers, and cashiers, they can pass their operational savings on to their clients in the form of higher rates. Online banks also compete aggressively for clients.
As fintech specialists, they may offer fewer financial products than a traditional bank, but they excel at providing top-tier online financial services.
Below is a comparison between Discover, an online bank, and the other big banks you are familiar with.
As you can see, the various fees that big banks charge can actually shrink your savings rather than grow them, regardless of the interest yield.
Is your money stuck in an online savings account?
No, you can access your HYOSA funds whenever you need them. While it’s wise to keep long-term savings in these accounts to maximize interest, you can also use them for your living expense budget and withdraw funds as needed.
HYOSA funds are not like Certificates of Deposit (CDs).
CDs offer high interest on the condition that you park your money with the bank for a fixed period, usually from six months to a few years. During this period, you cannot withdraw your savings without forfeiting the interest earned and paying steep early-termination fees.
With traditional banks, you often have to go to a branch or an ATM for transactions. At best, you might open your laptop to use the bank’s website. With a digital bank, you can simply use their smartphone app to conduct your business.
HYOSA funds allow you to transfer, deposit, or withdraw from your account at any time while still enjoying high-interest rates.
Which banks offer the highest-yield online savings accounts?
As of this writing, these are some of the online banks offering competitive HYOSA funds. (NOTE: The following table is a representative sample for September 2025. Actual rates fluctuate.)
| Bank | APY | Minimum Opening Deposit | Maintenance Fee | Remarks |
| Ally Bank | 4.75% | None | None | Excellent customer service and user-friendly app. Reimburses up to US$10/cycle for out-of-network ATM fees. |
| Marcus by Goldman Sachs | 4.90% | None | None | Strong backing from a major financial institution. No fees for transfers. |
| Capital One 360 | 4.80% | None | None | Integrates seamlessly with Capital One’s checking and credit card products. |
| Discover Bank | 4.75% | None | None | Known for great customer service and no account fees. |
| Varo Bank | Up to 5.0% | None | None | Tiered rate: Earn 5.0% APY on balances up to US$5,000 with qualifying direct deposits and debit card usage. |
| CIT Bank | 5.05% | $100 | None | Consistently offers one of the highest rates on the market. |
| Synchrony Bank | 4.95% | None | None | Offers an optional ATM card, which is not standard for all HYOSA funds. |
Do keep in mind that interest rates are determined by market factors and central bank policies. Rates change periodically, so please be sure to check the bank’s website for the most current information.
Can you lose money in a HYOSA?
No, your money is very safe. High-yield savings accounts are an excellent place to store cash while earning interest.
First, your money is insured for up to US$250,000 by the Federal Deposit Insurance Corp. (FDIC). Before opening an account, always confirm that the bank is FDIC-insured.
Second, if you choose a credit union, your funds are insured by the National Credit Union Administration (NCUA), which provides the same US$250,000 coverage per depositor.
Third, online savings accounts have robust digital paper trails, redundant security systems, and automated process checks. Eliminating hard copies and manual processing reduces opportunities for fraud and human error, making them extremely secure.
How much interest will I get on US$1000 a year in a savings account?
With a competitive HYOSA offering 5.0% APY, a US$1,000 deposit will earn US$50 in interest after one year.
This difference becomes even more stark when you compare specific banks. For example, an online institution like Ally Bank offers around 4.75% APY on its High-Yield Savings Account and approximately 4.25% APY for an 18-month Certificate of Deposit (CD).
In sharp contrast, a large traditional bank like Chase still offers a minimal 0.01% APY for its standard savings account and a far less competitive CD rate of around 2.5% APY. On a US$10,000 deposit, that′s the difference between earning roughly US$475 with Ally and only US$1 with Chase.
Source: Discover Bank’s online APY calculator
How do I choose a HYOSA?
1. Reputation – Research the digital bank’s reputation. Look at reviews on sites like Bankrate.com, NerdWallet, and Investopedia, and check consumer forums like Reddit for user feedback. It’s important to do your own research and analysis based on what you need.
2. Customer service – Remember that virtual banks don’t have a physical presence where you can go to do your transaction. This means you have to ensure that they have top-notch customer service. Again, there are websites where you can dig up the facts about companies. Better yet find out from someone who has first-hand experience.
3. Interest rate – Interest rate just only comes out third in our list of things to be concerned about. The APY on savings accounts is dependent on prevailing market forces. Look at the history of the bank and not just their present rates. Look for a virtual bank that offers rates that don’t fluctuate too much. Savings accounts are not like CDs where the interest rate is locked for the agreed period.
5. Savings cap – Some HYOSA funds have a cap on how much money you can put into your account so be aware of this. Find out how many accounts you can open under your name. Be mindful also of all the other fees like maintaining balance, monthly maintenance fees, outside network ATM fees, and other charges that will eat into your savings.
6. Compound interest – Aside from APY, another thing that will determine how fast your savings will grow is compound interest. In simplest terms, it is “interest on interest.” Both the interest on the principal and the accumulated interest are calculated. Compounded interest will make your savings grow much faster than simple interest can. Simple interest is calculated only from the principal.
Another determining factor is that compound interest accrues faster based on how frequent the compounding is done by the bank. The higher the frequency, the greater the compound interest. A savings of $100 compounded semi-annually at 5% will bring a much higher yield than the same $100 compounded annually at 10%. Over time this interest-on-interest effect will snowball even larger. That’s why it’s also called the “miracle of compound interest.” It’s one reason why the rich get richer.
Conclusion
Virtual banks have been a boon to millions of financially disadvantaged people. Access to finances and savings has never been easier for those who need it the most. Virtual banks’ high interest on savings put pressure on traditional banks to hike their interest rates on savings too.
Do your homework before putting your egg in one basket. Better yet, put your money in several virtual banks to try them out. Online banking is convenient because it is so easy to move your money around. It also takes only a few clicks to open a bank account. Do so until you find the right bank for you. The best time to get a HYOSA is now. The more you wait the more you are losing money.
