How does a high-yield savings account work?

A high-yield savings account works just like a regular savings account but offers a significantly higher interest rate, typically 4-5% APY compared to the national average of around 0.5% for standard accounts. You deposit money, and the bank pays you interest on your balance, usually compounded daily and credited monthly. These accounts are commonly offered by online banks, which have lower overhead costs than traditional banks and pass those savings to customers through better rates. Your money is still FDIC-insured up to $250,000, so it's safe. The main tradeoff is that rates are variable and can change, and some accounts have minimum balance requirements or limit the number of monthly withdrawals you can make.