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
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.
What are the cons of a high-yield savings account? ›
What are the disadvantages of a high-yield savings account? 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.
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.
Is there a catch with high-yield savings accounts? ›
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.
Which bank gives 7% interest on savings accounts? ›
Which Bank Gives 7% Interest Rate? Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.
Can I lose money in a high yield savings account? ›
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.
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 cash can you keep at home legally in the US? ›
The government has no regulations on the amount of money you can legally keep in your house or even the amount of money you can legally own overall. Just, the problem with keeping so much money in one place (likely in the form of cash) — it's very vulnerable to being lost.
Where is the best place to put your money besides a bank? ›
Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts. U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt.
How the Ultra-Wealthy Invest
| Rank | Asset | Average Proportion of Total Wealth |
|---|
| 1 | Primary and Secondary Homes | 32% |
| 2 | Equities | 18% |
| 3 | Commercial Property | 14% |
| 4 | Bonds | 12% |
7 more rowsOct 30, 2023
Keep any paper cash, currency, and valuable paper records locked in a quality, humidity-controlled, fire-resistant safe. If you have valuables such as paper cash or other important/sensitive documents, you absolutely need to invest in a quality safe with UL-rated security and certified fire protection.
What is the safest bank to put your money in? ›
JPMorgan Chase, the financial institution that owns Chase Bank, topped our experts' list because it's designated as the world's most systemically important bank on the 2023 G-SIB list. This designation means it has the highest loss absorbency requirements of any bank, providing more protection against financial crisis.
Is it better to keep cash in safe or bank? ›
In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses.
How much should I keep in my 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.
Can you lose all your money in a 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.
Is it better to have one high-yield savings account or multiple? ›
Opening multiple savings accounts can help you earn more interest, but it's essential to read the fine print. Again, some banks have a tiered interest rate structure for savings accounts, meaning you may only earn the highest rates once your balance reaches a certain amount.
Should I put my money in a high-yield savings account or money market? ›
A money market account gives you more access to your money in the form of direct checking and ATM withdrawals, but it will generally provide a lower interest rate. A high-yield savings account pays a much higher interest rate, but you have transfer limits and few, if any, accounts let you directly spend money.
