High-yield savings account (HYSA)
Also: HYSA, high-yield savings account, high yield savings
An FDIC-insured savings account that pays a significantly higher interest rate than a traditional savings account, typically offered by online banks with low overhead. Rates currently range from 4% to 5% APY.
A high-yield savings account is a deposit account at an FDIC-insured bank that pays interest competitive with money market funds, currently in the 4% to 5% APY range for most online banks. Deposits up to $250,000 per depositor per bank are FDIC insured. Interest is taxed as ordinary income, so the after-tax return for a 35% federal plus 10% state bracket drops a 4.5% APY to about 2.5%. For emergency funds and short-term savings, HYSAs balance liquidity, safety, and yield better than Treasuries or CDs.
Example: a tech employee keeps $150,000 of short-term cash (emergency fund plus upcoming quarterly tax payments) in a 4.8% APY HYSA, generating roughly $7,200 of annual interest. At a combined 45% marginal rate, after-tax yield is 2.6%, or $3,960 net of tax.
Common mistake: keeping $500,000 in one bank’s HYSA. Only $250,000 is FDIC insured per depositor per bank. Spread across multiple banks, use joint ownership for doubled coverage, or consider Treasuries for amounts above the FDIC limit.
HYSAs matter for emergency funds, quarterly estimated tax reserves, home purchase down payment savings, and near-term liquid cash needs.