High-yield savings account
A savings account that pays a much higher interest rate than a typical bank savings account, often offered by online banks.
A high-yield savings account works like any savings account. You can deposit and withdraw, and your money is insured by the FDIC (or by the NCUA at a credit union) up to the legal limit. The difference is the rate, which can be many times higher.
Rates are variable and can change at any time. Look for no monthly fees, no minimum balance and an easy link to your checking account. It is a good home for an emergency fund or a sinking fund.
Example
Assume a 4% APY. $5,000 earns about $5,000 × 4% = $200 in a year. At 0.5% APY, the same $5,000 earns $5,000 × 0.5% = $25.