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
A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.
Should I keep my money in a high-yield savings account? ›
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.
Where is the safest place to keep cash? ›
Here are some low-risk options.
- Checking accounts. If you put your savings in a checking account, you'll be able to get to it easily. ...
- Savings accounts. ...
- Money market accounts. ...
- Certificates of deposit. ...
- Fixed rate annuities. ...
- Series I and EE savings bonds. ...
- Treasury securities. ...
- Municipal bonds.
It's FDIC-Insured
If your bank were to go out of business, the money in your account would be safe. You would either be paid that money directly or, more likely, a new account would be opened for you at another bank with the same balance as before. This is not the case with other types of investments.
Are there any cons to 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.
Can you ever lose your money with high-yield savings account? ›
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
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.
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.”
Are CDs worth it? ›
If you're looking for a safe way to earn interest on your savings, a certificate of deposit, or CD, is worth considering. CDs tend to offer higher interest rates than savings accounts. And today's best CD rates are far higher than the national averages.
Why can't I withdraw my money from Stash? ›
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.
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.
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 to put a lump sum of money? ›
Storing your lump sum wisely
Upon receiving a lump sum, the immediate question is where to store it. A savings account is a common choice, offering a secure place to keep your money while earning some interest. There are several types of savings accounts designed to cater to different needs and goals.
What banks are least likely to fail? ›
Summary: Safest Banks In The U.S. Of May 2024
| Bank | Forbes Advisor Rating | Learn more CTA below text |
|---|
| Chase Bank | 5.0 | Read Our Full Review |
| Bank of America | 4.2 | |
| Wells Fargo Bank | 4.0 | Read Our Full Review |
| Citi® | 4.0 | |
1 more rowJan 29, 2024
Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank. For instance, there's no guarantee that funds kept in your home are safe from burglars or fires.
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.
How long should you keep money in high-yield savings account? ›
There's no rule on the exact amount to have in your high-yield savings account. The amount of money you should store in these accounts depends on various factors. However, the general rule of thumb is that you should have liquid access to enough cash to cover between three and six months of your expenses.
How much should you keep in a high-yield savings account? ›
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
