Can You Close a High-Yield Savings Account? Here’s What to Know

High-yield savings accounts offer better interest rates than traditional savings accounts, making them a popular choice for growing savings. However, closing one involves specific steps, potential fees, and tax implications. Understanding the process ensures a smooth transition.

Bank-Specific Requirements

Each bank has its own policies for closing a high-yield savings account. Some allow online closures, while others require a phone call or in-person visit. Online-only banks like Ally or Marcus by Goldman Sachs typically offer digital options, whereas traditional banks such as Wells Fargo or Chase may require additional verification.

Many banks enforce a waiting period before allowing closure, often between 90 and 180 days. Closing too soon may trigger restrictions or affect future account openings with the bank.

Pending transactions must clear before closure. Scheduled transfers, automatic deposits, or linked external accounts should be addressed first. Otherwise, the bank may delay the process or even reopen the account if a transaction posts after the request.

Potential Fees

Some banks charge early closure fees, particularly if the account has been open for a short time. These fees typically range from $5 to $25, though some, like CIT Bank, charge up to $30 for closures within 90 days. This discourages customers from frequently opening and closing accounts to take advantage of promotions.

Maintenance fees may apply if the balance falls below a required minimum before closure. Most high-yield savings accounts don’t have monthly fees, but some banks deduct a prorated charge if the balance is too low at closure. This is especially relevant for accounts with tiered interest rates.

Dormancy fees can also apply if the account has been inactive for an extended period. Some banks classify an account as dormant after 12 months of inactivity, triggering a monthly fee. For example, Bank of America charges $5 per month for dormant savings accounts in certain states. If an account is closed after dormancy fees accumulate, those charges may be deducted from the final balance.

Transfer or Withdrawal of Funds

Before closing a high-yield savings account, all funds must be withdrawn or transferred. Many banks allow direct transfers to an external account, but limits and processing times vary. Transfer caps typically range from $10,000 to $25,000 per transaction, meaning multiple transfers may be necessary for larger balances. ACH transfers take one to three business days, while wire transfers are faster but often cost $15 to $30.

For those opting for a check, requesting a cashier’s check instead of a standard mailed check reduces the risk of delays or lost payments. Cashier’s checks provide added security but may come with a fee. Standard checks can take up to two weeks to arrive, and if lost, a replacement may require a waiting period of up to 90 days.

If the account is linked to bill payments, loans, or direct deposits, updating these details before withdrawing funds prevents returned payments or delays. Some employers take multiple pay cycles to process direct deposit changes, so timing the transition appropriately is important.

Tax Considerations

Interest earned on a high-yield savings account is taxable income and must be reported to the IRS. Banks issue Form 1099-INT if total interest exceeds $10 in a calendar year, but even if earnings fall below this threshold, taxpayers are still required to report it. The tax rate on interest income depends on an individual’s ordinary income tax bracket, which ranges from 10% to 37% for federal taxes in 2024. Some states, such as Texas and Florida, do not impose state income tax, while others, like California and New York, tax interest earnings at the same rate as regular income.

Closing a high-yield savings account mid-year may result in partial-year interest that must be accounted for in tax filings. If interest is paid monthly, the final amount earned before closure should be recorded, as banks may not issue a 1099-INT if total earnings fall below the reporting threshold. Reviewing account statements ensures accurate reporting and helps avoid IRS notices or audits.

Confirming Closure

Once all funds have been withdrawn and tax implications addressed, the final step is confirming the account’s closure. Some banks require additional verification or processing time before finalizing the request. Monitoring the account for a few weeks ensures it remains closed and no residual interest or automatic transactions cause it to reopen.

Requesting written confirmation provides a formal record. Some banks send a closure confirmation letter or email, while others require customers to check their online banking portal. Keeping this documentation helps resolve disputes, such as unexpected fees or a reopened account due to lingering transactions. Checking credit reports can ensure the closed account no longer appears in your financial profile.