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Are high-yield savings accounts safe?
If you’re looking for a safe place to keep your savings while helping it grow, you may have come across high-yield savings accounts (HYSAs). These accounts provide some of the highest annual percentage yields available today.
However, you may wonder if high-yield savings accounts are safe. After all, many HYSAs are offered by online institutions, some of which may be unfamiliar to you.
Generally, high-yield savings accounts are perfectly safe. Learn more about why these accounts are so secure and how to choose the right one.
Read more: The 10 best high-yield savings accounts available today
4 reasons why high-yield savings accounts are safe for your money
As a general rule, high-yield savings accounts are absolutely safe. Here's why:
They're (usually) insured by the federal government
The Federal Deposit Insurance Corporation (FDIC) guarantees deposits up to $250,000 per depositor, per institution, per ownership category. In the case of credit unions, the National Credit Union Administration (NCUA) provides similar insurance. That means in the rare instance your financial institution fails, you’ll get your money back as long as it’s held at a federally insured institution and the balance is under the $250,000 limit.
If you have more than $250,000 in deposits, it’s important to spread that money across different banks and account types — and always ensure that your financial institution is federally insured. You can find out by using FDIC’s BankFind website tool or the NCUA’s credit union research website.
Read more: How to insure deposits over $250,000
You can’t lose principal
Unlike investments, which can gain and lose value depending on how the stock market performs, you can’t lose money in a high-yield savings account due to market fluctuations. If rates are low, you may not earn as much in interest — but the only way your balance can go down (aside from making withdrawals) is if you incur bank fees.
Read more: Can you lose money in a high-yield savings account?
High interest rates help hedge against inflation
This is a big reason to use a high-yield savings account. Most traditional savings accounts offer interest rates under 1%. Yet today, inflation stands at less than 3%, and in recent years, it hit as high as 9%.
In other words, if your savings account’s interest rate is less than the current inflation rate, the value of your dollars is decreasing over time and your money won't go as far when you spend it. But with today's high-yield savings accounts — the best of which offer 4%-5% APY — your interest earnings will outpace inflation.
Read more: How to protect your savings against inflation
Funds are easy to access
Money in certain investments is not easy to access at a moment’s notice. With stocks, for example, you must first sell shares at the current price and then transfer the funds to your checking or savings account. Even with a certificate of deposit, you have to wait until it matures to pull your money out or else pay an early withdrawal penalty.
But a high-yield savings account allows you to withdraw money as needed. There is no fee to do so, although you may be limited on how many fee-free withdrawals you can make in a month.
Read more: What is a 'liquid' asset? Definition and examples.
Drawbacks of high-yield savings accounts
In general, high-yield savings accounts are an excellent option for securely storing your savings and earning a competitive return. That said, these accounts don’t make sense in every situation. Before putting your money in an HYSA, consider these factors first:
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Interest rate: Though high-yield savings accounts are, by name, supposed to provide higher interest rates than other types of deposit accounts, rates do vary. Some banks offer HYSAs with rates as high as 5% APY or more, while others offer much less.
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Minimum balance requirements: Some banks may require you to keep a certain amount of money in your savings account to earn the highest advertised rate or require a minimum deposit to open an account. Be sure you have the cash on hand to meet minimum balance requirements.
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Fees: Most banks don’t charge monthly maintenance fees for high-yield savings accounts, but there may be other types of fees you could incur. These include excess withdrawal fees, overdraft fees, and inactivity fees, all of which cut into the profits you’re earning from interest.
Is a high-yield savings account right for you?
The answer to whether a high-yield savings account is right for you depends on… you. If you’re looking for an account that will protect your money, hedge against inflation, and help your balance grow, an HYSA is one of the best options out there.
However, if you’re saving for a long-term goal like retirement, even the high yields of these accounts won’t be enough to get you there. For bigger savings goals with a long timeline, higher risk (but higher reward) investments are necessary.
Read more: High-yield savings account vs. investing: Which is right for you?
Frequently asked questions
What is the risk of a high-yield savings account?
High-yield savings accounts generally offer better interest rates than regular savings accounts, but they don't compare to the returns you can achieve through market investments. If you keep too much money in an HYSA, you risk losing out on higher long-term returns. That's why it's best to keep funds for short-to medium-term savings goals in an HYSA ,and invest money that's meant for long-term goals such as retirement or funding your child's future education.
Can high-yield savings accounts lose money?
Technically, a high-yield savings account doesn’t directly lose money in the same way as investments might, since deposits aren't subject to market risk. However, if inflation outpaces your HYSA’s interest rate, the real value of your savings could effectively decrease over time, meaning you may lose purchasing power. Additionally, some accounts charge fees if certain conditions aren’t met (e.g., minimum balance requirements), which could cause your balance to decrease.
What is the negative of a high-yield savings account?
Despite their many benefits, high-yield savings accounts do come with some potential downsides. For instance, some HYSAs — especially those offered by online-only banks — don’t offer ATM access or branch services, which could limit how quickly you can access your funds. Also, some banks may limit certain types of withdrawals or transfers to six per month, and exceeding this limit could lead to fees or account restrictions. Finally, shile HYSAs are safer, they don’t provide the same growth potential as stocks, bonds, or other investments over the long term.
Is it worth putting money in a high-yield savings account?
If you’re looking to store money for short-term goals, such an emergency fund or big-ticket purcahse, a high-yield savings account is typically worth it due to its liquidity and safety.
