What distinguishes high-yield savings accounts from traditional savings accounts?

High-yield savings accounts are primarily distinguished from traditional savings accounts by their offering of significantly better interest rates. This higher interest rate is typically a result of the financial institution's business model, which often involves lower overhead costs, especially when these accounts are offered by online banks that do not maintain physical branches. As a result, they can pass these savings onto customers in the form of more competitive interest earnings.

This aspect makes high-yield savings accounts an attractive option for individuals looking to maximize their interest income without sacrificing the liquidity and safety that savings accounts generally provide. Unlike traditional savings accounts, which may offer very modest interest returns that often languish below inflation rates, high-yield accounts can provide a noticeable increase in savings growth over time.

Other factors such as minimum balance requirements, investment risk, or deposit terms do not inherently define high-yield savings accounts, making the interest rate difference the most significant distinguishing feature.