A high-yield savings account isn't just a stable place to stash your cash. Thanks to the higher interest rate, money in a high-yield account will grow at a faster rate than a traditional savings account.
And even though the economic fallout from the coronavirus pandemic has caused savings account interest rates to drop to nearly half of what they were a year ago, you can still earn over 10 times more interest than the national average.
In fact, if you have not yet built an emergency fund or you're working toward reaching a certain financial milestone within the next two years, a high-yield savings account still makes perfect sense.
For those looking to grow their money, here are the pluses and minuses that come with having a high-yield savings account:
The pros of high-yield savings accounts
Everyone should have some cash savings on hand for emergencies and short-term financial goals. And the smartest place to store that money is in a high-yield savings account.
Here are some of the pros to opening a high-yield account:
- Although the interest rates now hover around 1%, this yield still outpaces the 0.06% return you'd earn keeping your money in a traditional bank savings account.
- Because these savings accounts compound interest daily, you're earning interest each day, and you don't have to start with much to save over time. For example, CNBC Select calculated that by making a $20 weekly deposit, you cansave $1,000 in one year (which equates to saving less than $3 per day).
- You don't take on any risk depositing your cash into a high-yield savings account that is FDIC-insured up to $250,000. Your money is safe if something were to happen, such as a run on the bank.
- The money sitting in your high-yield savings is accessible if you ever need to tap into it.
- The best high-yield savings accounts come with no additional costs, such as monthly fees, and low (or no) minimum deposits and balance requirements.
- Because the highest-yield savings accounts are online, most make it easy to manage your money on-the-go with mobile banking apps.
- Savers can easily transfer their money between their high-yield savings account and other bank accounts.
For those looking to save, whether you're setting up an emergency fund or trying to achieve a near-term financial goal, check out our ranking of the top five high-yield savings accounts:
- Best overall: Marcus by Goldman Sachs High Yield Online Savings
- Best for checking/savings combo: Ally Online Savings Account
- Best for easy access to your cash: Synchrony Bank High Yield Savings
- Best for earning a high APY: Vio Bank High Yield Online Savings Account
- Best if you want extra help saving: Varo Savings Account
The cons of high-yield savings accounts
While there are a lot of upsides to putting your money into a high-yield savings accounts, there are a few downsides to keep in mind.
Here are some of the negatives:
- Interest rates on high-yield savings accounts are variable and can fluctuate at any time, so while a bank may advertise a high annual percentage yield (APY) when you apply, it likely won't last forever.
- While you can grow your money daily and take on zero risk with high-yield savings, they are not the best way to grow your wealth long-term. The rate of inflation can be higher than the yield you earn over time, so it's better to not keep piling cash into your savings and instead invest your money.
- Your savings are accessible, but only up to a certain number of withdrawals before you're hit with a fee. The federal withdrawal limit for online savings accounts restricts the number of times you can access your cash each month. High-yield savings account holders can only withdraw or transfer money (including electronic transfers, checks and wire transfers) out of their account up to six times per month without having to pay a penalty fee or risk having their account closed.
- Most of the online high-yield savings account banks don't have a physical bank location.
- While some savings accounts offer ATM cards for easily withdrawals, not all online banks do.
- You can transfer your funds from one bank to another but it may take some time, typically 24 to 48 hours.
Bottom line
In general, high-yield savings accounts are an essential financial product when you're building an emergency fund or saving up for a something in the near future, like a family vacation.
You can maximize the return on your money more so than in a brick-and-mortar bank account, your cash is safe and you can access it if you need to.
Information about Marcus by Goldman Sachs High Yield Online Savings,Ally Online Savings Account,Synchrony Bank High Yield Savings,Vio Bank High Yield Online Savings Account, andVaro Savings Accounthas been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Goldman Sachs Bank USA is a Member FDIC.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
Pros and cons of a high-yield savings account
What is the catch with a high-yield savings account? ›
High-yield savings account FAQs
However, your savings can lose purchasing power over time because of inflation. For example, if your high-yield savings account pays 2 percent and the annual inflation rate is 6 percent, your money has lost 4 percent of its purchasing power.
Can you lose money with a high-yield savings account? ›
Losing money in an HYSA is rare, but it can happen.
If you're looking for safe ways to grow your money and protect your savings, a high-yield savings account (HYSA) can be a great option. This type of deposit account is available through many banks and credit unions, particularly online financial institutions.
Do millionaires use high-yield savings accounts? ›
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.
Should I move all my money to a high-yield savings account? ›
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.
Which bank gives 7% interest on savings accounts? ›
As of May 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
How long should you keep money in a high-yield savings account? ›
A high-yield savings account can be a great place to store your emergency savings. Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times.
How much is too much in high-yield savings account? ›
Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”
What is the safest way to stash cash? ›
It is better to keep your money in a bank or other financial institution, insured and secure. This is especially important if you have large amounts of money.”
Where is the best place to put your money besides a bank? ›
Money market account
A money market account can be a safe place to park extra cash and earn a higher yield than from a traditional savings account. Money market accounts are like savings accounts, but they often pay more interest and may offer a limited number of checks and debit card transactions per month.
There are four factors that may impact your ability to transfer out of your Stash Personal Brokerage portfolio: Invested funds: If you want to transfer money you've invested, you'll need to sell those investments first. Unsettled sales: Funds from an investment sale will take two business days to settle.
Do you pay taxes on a high-yield savings account? ›
The IRS treats interest earned on a savings account as earned income, meaning it can be taxed. So, if you received $125 in interest on a high-yield savings account in 2023, you're required to pay taxes on that interest when you file your federal tax return for the 2023 tax year.
What happens if you put 50000 in a high-yield savings account? ›
How much of a difference does this make? If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 5.32% APY,* your one-year interest soars to over $2,660.
Can you lose money in a money market account? ›
Since money market accounts are insured by the FDIC or the NCUA, you cannot lose the money you contribute to the account—even in the event of a bank failure. You can, however, be subject to fees and penalties that reduce your earnings.
Why shouldn't I use a high-yield savings account? ›
While high-yield savings accounts offer high APYs and zero risk, they're not the best way to grow your wealth long-term. That's because your APY can go up and down, and your yield may not outpace the inflation rate.
Why would you not use a high-yield savings account? ›
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.
Why don t people use high-yield savings accounts? ›
That could be because people see a savings account as just a place to park money, as opposed to growing it, so they're not shopping for the best rates, says Bill Van Sant, a CFP®, AIF® and senior VP and managing director at Girard® Investment Services.
Are high-yield savings accounts good or bad? ›
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.
