High-Yield Savings Account Glossary

Navigating the world of high-yield savings accounts (HYSAs) can feel like learning a new language. This glossary provides clear, concise definitions for essential terms and concepts, empowering you with the knowledge to understand HYSAs and make informed financial decisions.

High-Yield Savings Account (HYSA): An interest-bearing deposit account that pays a markedly higher rate than the national average for standard savings, while preserving daily liquidity and FDIC protection.
Annual Percentage Yield (APY): The standardized, compound-inclusive rate showing how much interest you'll earn in one year if you leave the balance untouched. It lets you compare offers apples-to-apples.
Interest Rate: The base rate a bank applies before compounding. When quoted without “APY,” it usually excludes compounding effects.
Compounding: The process of earning interest on previously credited interest. Frequencies vary (daily, monthly, quarterly) and directly affect APY by changing total interest earned.
Compounding Frequency: The interval at which interest is calculated and added to the account balance. Common frequencies include daily, monthly and quarterly.
Tiered Rates: A pricing structure where different balance bands earn different APYs (e.g., 5.00 % on the first $25 k, 4.50 % thereafter). Higher balances don't always mean higher rates—some banks pay less above a cap.
Promotional Rate: A higher interest rate offered for a limited period (typically the first 3-6 months) or when certain conditions are met. After the promo ends, the rate reverts to the standard APY, often 0.25-1.00 pp lower.
FDIC Insurance: Federal protection covering deposits up to $250,000 per depositor, per bank, per ownership category—safeguarding funds if the bank fails.
Liquidity: How quickly and cheaply you can turn the balance into spendable cash. HYSAs are highly liquid because withdrawals typically settle within 0-2 business days.
Withdrawal Limit: Some HYSAs cap outbound transfers (e.g., six per statement cycle) or impose internal daily dollar limits for security reasons.
Transaction Limits: Beyond withdrawals, banks may set caps on the number or dollar amount of transactions—such as daily mobile-deposit or transfer limits.
ACH Transfer: An electronic funds-transfer system used to move money between bank accounts—common for direct deposits, bill payments and funding HYSAs.
Wire Transfer: A faster but more expensive method of moving funds electronically, typically for large, urgent transfers. HYSAs may accept incoming wires but often charge for outgoing ones.
External Account Linking: Connecting your HYSA to accounts at other financial institutions to enable transfers in and out; usually verified with micro-deposits.
Overdraft Protection: A service that prevents your HYSA from going negative by automatically pulling funds from a linked account. Most HYSAs don't offer it—they're designed to stay positive.
Account Closure: Formally terminating your HYSA. Some banks charge a fee if you close it within a set period (e.g., 90 days), and accrued but un-credited interest may be forfeited.
Account Statements: Periodic summaries of your HYSA activity—deposits, withdrawals, interest earned and fees. Usually delivered electronically, with paper statements available for a fee.
Statement Cycle: The recurring period (typically monthly) over which your bank tracks account activity before generating a statement.
Account Alerts: Email, SMS or push notifications that keep you updated on deposits, withdrawals, low balances or interest payments. You choose which alerts and channels you want.
Minimum Deposit: The smallest amount required to open the account. Many online-only banks set this between $0 and $100.
Maintenance Fee: A monthly charge some institutions levy if your balance or activity falls below set thresholds. Rare among leading online HYSAs; legacy banks may charge $1-$10 per month.
Online Banking: The web interface for managing your HYSA—viewing balances, initiating ACH transfers, downloading statements and more.
Mobile App: The bank's smartphone app that offers account management plus push alerts, biometric login, mobile check deposit and budgeting tools.
Automated Transfer: A scheduled, recurring move of money—often from checking to HYSA—to “pay yourself first,” maintain minimum balances or build savings toward a goal.
Emergency Fund: Three-to-six months of living expenses parked in an HYSA to cover unforeseen costs without tapping higher-risk investments.
Inflation Risk: The possibility that rising consumer prices outpace your APY, eroding real purchasing power even as the nominal balance grows.
Savings Goal: A target amount earmarked for a future need (e.g., a down payment). Many HYSAs let you create sub-accounts or “buckets” to track each goal separately.