How to Compare High-Yield Savings Accounts: APY, Balance Caps and FDIC

Compare APY to APY

Federal rules give the two numbers on a savings offer different jobs. Under Regulation DD, the annual percentage yield is the total interest you'd earn over 365 days, based on the interest rate and how often it compounds. The interest rate is the yearly rate before compounding. Two accounts with the same interest rate can show different APYs if one compounds more often.

So the first step is simple. Put the APYs side by side and ignore any "rate" figure that isn't labeled APY. If a page only shows an interest rate, find the APY in the account disclosures before you compare.

Read the conditions before the number

Most savings APYs are variable. Regulation DD calls an account variable-rate when the bank can change the rate after you open it without promising 30 days' written notice of a cut. In practice, the top rate on a comparison table today is one decision by the bank, and it can make a different one next month.

Look for these conditions in the account terms:

• A minimum balance you must keep to earn the advertised APY.
• A monthly direct deposit or another activity requirement.
• A balance cap. Above it, a lower rate applies to the rest of your money. Regulation DD calls an account with different rates for different balance levels a tiered-rate account.
• An introductory period, after which the rate drops to a standard one.

The cap is the condition people miss most. Here's an example with made-up rates. You have $30,000 to save. Account A pays 4.00% APY up to $10,000 and 0.50% above that. Account B pays 3.60% APY on every dollar.

Account A earns $400 on the first $10,000 and $100 on the other $20,000. That's $500 a year, or 1.67% across your whole balance.

Account B earns $1,080 a year. You'd earn $580 more with the account that has the lower headline rate.

Find out which bank holds your money

Many high-yield accounts come from app companies that aren't banks. The FDIC says plainly that nonbank companies are never FDIC-insured themselves. Your money is only eligible for FDIC coverage after the company places it at an FDIC-insured bank and keeps records showing that it belongs to you. That arrangement is called pass-through coverage.

Two limits follow from that. First, pass-through coverage protects you if the partner bank fails. It doesn't protect you if the app company itself goes bankrupt, and getting money back in that case can take time. Second, coverage is counted at the bank. The FDIC says deposits are insured to at least $250,000 at each FDIC-insured bank. If you already keep savings at the same partner bank, your two balances can share one limit.

Before you deposit, find the partner bank's name in the app's disclosures and look it up on the FDIC's BankFind tool. For a credit union, the NCUA's Share Insurance Fund covers up to $250,000 at federal credit unions and most state-chartered ones.

Check how fast you can get the money out

Ask three questions before you move cash. How long does an incoming transfer take before you can use it? Is there a limit on withdrawals each statement period? How will the bank tell you about a rate change?

An account that pays a little more but holds transfers for several business days costs you the first time you need money fast. Check every answer against the provider's current terms and its deposit-insurance disclosure. That includes this page: rates and partner-bank lists change more often than the pages that describe them.

Compare it with the other places cash can sit

A high-yield savings account is one place to keep cash, and other savings accounts are only part of the comparison. A money market account often pays a rate in the same range with different access rules. A certificate of deposit locks in a fixed rate for a fixed term, which removes the rate-cut problem, but you usually pay a penalty if you take the money out early. Treasury bills and the funds that hold them are another option, with different risk and settlement timing.

Start from when you'll need the money. Cash you may need within weeks belongs somewhere you can reach right away, even at a slightly lower APY. Cash with a known date can go into a term product. Splitting a balance between two of these is common.

Check insurance on each one separately. A CD at one bank and an app balance swept to that same bank can share one FDIC limit, even though they look like two products.

If you're deciding between cash and investing for money you won't touch for years, read robo-advisor vs index fund: which costs less.

Saving up a deposit for a secured card? Our guide to credit cards for bad credit lists deposits from $49.

A short checklist

Before you open an account, write down:

1. The APY, labeled as APY.
2. The balance cap, and the rate above it.
3. Every condition: minimum balance, direct deposit, anything else.
4. Whether the rate is introductory, and what it drops to.
5. The bank that holds the money, checked on BankFind.
6. Your total balance at that bank, counting money you already have there.
7. How long transfers take and any withdrawal limits.

If you can't find more than one of these in the provider's own terms, treat that as an answer. The rate is the part of the offer built to be found. The conditions decide what you actually earn.

To track the account once it's open, see how to choose a net worth tracker you'll keep using.