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  • High-yield savings accounts and standard savings accounts are more similar than they are different. 
  • They're both offered by banks, federally regulated, and liquid.
  • The main difference is that high-yield savings accounts earn up to 20 times more interest, with interest rates generally between 1.5% and 2%. 
  • That interest rate means high-yield savings are almost always a better choice than traditional savings for money you'll need within the next few years.
  • See Business Insider's picks for the best high-yield savings accounts »

A savings account is a good place to save money for short-term goals like a down payment, a car, a vacation, or an emergency fund.

But a high-yield savings account is a better place.

A high-yield savings account is almost exactly the same as a regular savings account

High-yield savings accounts are essentially the same as any other savings accounts, with one key difference: With a high-yield savings account, you earn about 20 times more interest on your money than you would with a regular savings account.

Both types of accounts:

  • Are structurally pretty similar
  • Are regulated similarly and FDIC-insured
  • Limit withdrawals to six times a month, per federal mandate
  • Can be used for short-term savings goals

High-yield savings accounts are just as liquid as any other savings account, and they're not invested, making them a good place to put any savings that you want to grow but will need in the next few years. Experts recommend against investing cash you know you'll need within the next five years, as you won't have time to recoup your investment after any market downturn.

High-yield savings accounts could help your emergency fund grow, while still being accessible if you need it in a pinch. They're perfect for a large balance like down payment savings that you want to grow risk-free.

A high-yield savings account is almost always better than a regular savings account

High-yield savings accounts are designed to make your money work in a way typical savings can't. In the grand scheme of things, high-yield savings don't earn that much interest - when interest rates were higher this summer, the best accounts were earning around 2.5%. However, traditional accounts earn so little that high-yield earns about 20 times more interest than the typical savings account. According to data from SmartAsset, the national average savings account interest rate is just .09% APR. 

Comparatively, high-yield savings accounts aim much higher, with many offering 1.5% to 2% interest. That's a percentage which can easily boost your savings, especially over the course of several years. 

For example, if you had a $10,000 emergency fund and transferred it into a high-yield savings account with 1.5% interest, compounding monthly for five years, you'd earn $776 in interest alone. Leave it for 10 years, and that $10,000 would grow to $11,617. 

Back in a regular account earning .09 interest, that same $10,000 would have only earned $90 over 10 years. 

It's worth noting that savings account rates change with the Federal Funds rate. When the Federal Reserve cuts or raises interest rates, the rates can change, going up or down. But even if rates are low, it's still worth saving to build the habit and keep adding to your balance. 

There are lots of high-yield savings accounts to choose from, with some of the best choices from online banks and banking services like Ally and Wealthfront. Opening one is simple, and can even be done right from your phone. 

The main difference between the typical savings account and a high-yield savings account is how much more your account will grow. 

Personal Finance Insider offers tools and calculators to help you make smart decisions with your money. We do not give investment advice or encourage you to buy or sell stocks or other financial products. What you decide to do with your money is up to you. If you take action based on one of the recommendations listed in the calculator, we get a small share of the revenue from our commerce partners.

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