Is a $10,000 deposit into a high-yield savings account worth it? (2024)

FAQs

Is a $10,000 deposit into a high-yield savings account worth it? ›

Here are three major benefits: Higher rates: Rates on high-yield savings accounts are approaching 5% right now. That's equivalent to an extra $500 earned on a $10,000 deposit over one year, simply made by transferring funds from a regular account into a high-yield one.

The rate environment is favorable

On a $10,000 deposit, that would equate to $500 after one year. That's a substantial amount of interest, and it dwarfs the minimal 0.46% that most savers are currently getting with their regular savings accounts.

You can't lose your money because, just like your regular checking and savings accounts, the money is insured by the Federal Deposit Insurance Corporation up to $250,000.

Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.

Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it.

What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.

First things first: There's nothing wrong with keeping $10,000 in a savings account. If you're working with a reputable bank, your money will have Federal Deposit Insurance Corporation (FDIC) insurance up to $250,000 per person per account ($500,000 for joint accounts).

Many investment experts recommend a 60/40 mix. That is an investment portfolio invested 60% in equities (company shares) and 40% in bonds. For higher returns, an attractive investment for £10,000 could be shares or equity funds (which are made up of shares).

What is better, a CD or high-yield savings account? ›

If your goal is to lock in a high rate of interest on funds you don't need to access for a period of time, a CD might be your best option. However, a high-yield savings account may be the better choice if you want to earn solid interest on your savings while still keeping the money relatively accessible.

Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.

Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.

Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times. So, if you have $4,000 per month in expenses, you should have between $12,000 and $24,000 in liquid savings at all times.

All of your high-yield savings account interest is taxable. Your financial institution will send you a Form 1099-INT once you earn more than $10 in interest.

It's safe from the stock market: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market. The APY will be working for you regardless (though it could be lower than the rate you had when you opened the account).

Let's look at how much you could make by depositing $1,000 into accounts with various ranges: After one year with a regular account at 0.43%: $1,004.30. After one year with a high-yield account at 4.50%: $1,045.00. After one year with a high-yield account at 5.00%: $1,050.00.

Many HYSAs also have similar withdrawal limits to traditional savings accounts, traditionally six withdrawals per month. However, the Federal Reserve Board currently allows consumers to make unlimited withdrawals.

According to experts, having $10,000 in savings is an excellent position to be in, and there are several smart moves you can make to optimize your financial situation. “If you have $10,000 in savings, the best way to use it depends on your current financial situation,” said Jake Hill, CEO of DebtHammer Consolidation.