Personal Finance Banking Savings
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- A high-yield savings account has a higher interest rate than a typical bank savings account.
- A financial planner says they work best for short-term savings goals, like planning for a vacation.
- Most high-yield savings accounts have no minimum deposit required to open the account.
- Earn 5.30% APY with a BrioDirect High-Yield Savings Account.
If you're having trouble saving toward your future goals, finding the right place to stash your money might be the key to changing your habits once and for all.
For long-term goals, like retirement, investing your money is best — you have enough time to weather ups and downs in the market. But keeping money you need in the next couple of years — like your emergency fund or travel money — in a brokerage account just isn't wise, since your money can lose value in the short term and you may have to pay a higher tax rate to withdraw your funds.
For short-term goals, choose a high-yield savings account, says financial planner Spencer Betts.
At the moment, some high-yield savings accounts have interest rates over 5% compared to 0.45% for the average bank account (though rates go up and down). The higher interest rate can make a huge difference in your saving mindset because you can watch your savings grow, Betts says. They're also typically easy to open online, often with no minimum deposit required.
Another plus, even if it doesn't seem like it: High-yield savings accounts limit how many times you can withdraw from your account.
"An account that has some restrictions is a good thing, mentally, so you're not tapping into those funds for going out to eat," Betts says. Federal law allows you to withdraw from your account six times each month, which keeps your cash easily accessible, but withdrawing from it the same way you would a checking account may cost you extra in fees.
Here are three situations where Betts says you should definitely keep your cash in a high-yield savings account.
1. Building an emergency savings fund
"Usually you want three to six months of living expenses set aside someplace," says Betts. "That includes unexpected repairs for the house, or, if you get laid off, some cash to get you through in between."
Using a high-yield savings account is a great way to let your emergency fund money grow while you're stashing it away for an emergency.
2. Creating a travel budget
Betts advises his clients to use a high-yield savings account to save up for their travels. Seeing the extra bump each month from the higher interest rate can motivate you to put a little more each month into your savings account.
3. Paying down debt
Experts recommend only keeping three to six months in a high-yield savings account for emergencies. Any excess savings should be put toward debt repayment or investing.
If you have a debt payoff goal on the horizon, but still want to hold onto that money in case of emergencies in the meantime, Betts says using a high-yield savings account is smart — you can build up some extra cash to put towards your debt or treat yourself once the debt is paid off.
This article was originally published in October 2022.
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FAQs
The interest in some HYSAs compounds daily, with others it's monthly. HYSAs are usually offered by online institutions, not brick-and-mortar banks. If you're thinking about opening an account, consider the APY, fees, any opening deposit and balance requirements and how easy it is to access your money.
How often can you use high-yield savings? ›
The interest in some HYSAs compounds daily, with others it's monthly. HYSAs are usually offered by online institutions, not brick-and-mortar banks. If you're thinking about opening an account, consider the APY, fees, any opening deposit and balance requirements and how easy it is to access your money.
What is the catch with 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.
Should you use a high-yield savings account? ›
While high-yield savings accounts offer higher interest rates than traditional savings accounts, they may not outpace inflation, potentially eroding your purchasing power over time. As a result, they're not typically recommended for long-term wealth-building or retirement savings.
Is it wise to have multiple high-yield savings accounts? ›
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.
Can you ever lose your money with high-yield savings account? ›
As long as you're banking with an FDIC-protected bank, you're not risking losing your money when you deposit it into a high-yield savings account. However, the rate of inflation can be higher than your APY, resulting in a negative real return, or the return after taxes and inflation are taken into account.
How many times can you withdraw from a high-yield savings account? ›
Therefore, most savings accounts — both traditional and high-yield — limit withdrawals to six times per statement cycle, although they are no longer required to limit the withdrawals*. To avoid being charged an excessive withdrawal fee (usually between $3 and $15), track how many withdrawals you make each month.
What are the downsides 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. But for most people, these aren't major issues.
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? ›
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.
If you put $10,000 into a high-yield savings account with a 5.00% APY, you'll make $500 in interest in a year. If you deposit $10,000 into a high-yield savings account with a 5.00% APY at age 20, you'll earn nearly $80,000 in interest by the time you turn 65.
Is a high-yield savings account good for retirement? ›
Whether you're building out your first strategy or on the cusp of retirement, maintaining high-yield savings accounts and CDs is a safe and convenient way to balance out market volatility and still earn a healthy return on your deposits.
What is the best high-yield savings account? ›
Best High-Yield Savings Account Rates for September 2024
- Poppy Bank – 5.50% APY.
- Western Alliance Bank – 5.31% APY.
- Forbright Bank – 5.30% APY.
- Vio Bank – 5.30% APY.
- BrioDirect – 5.30% APY.
- Ivy Bank – 5.30% APY.
- TotalBank – 5.26% APY.
- Jenius Bank – 5.25% APY.
Bottom line. Any individual or entity that has more than $250,000 in deposits at an FDIC-insured bank should see to it that all monies are federally insured. It's not only diligent savers and high-net-worth individuals who might need extra FDIC coverage.
Is it safe to keep all your money in one bank? ›
Keeping all of your money at one bank can be convenient and is generally safe. However, if your account balances exceed the deposit limit that's insured by the FDIC, some of your money may not be protected if the bank fails. And if you're a fraud victim, having cash all in one place could compromise more of your money.
Is your money stuck in a high-yield savings account? ›
Myth 1: Your money is stuck in a savings account
Savings accounts are designed to keep your funds liquid, meaning you can access your money anytime. This is what makes savings accounts — and high-yield savings accounts especially — such a good choice for keeping your emergency fund.
How much will $1,000 make in a high-yield savings account? ›
If you deposit $1,000 into a high-yield savings account with a 4.5% APY, you'll earn just over $45 in interest after one year. At 5% APY, you'd earn about $51. If you deposit $1,000 into a high-yield savings account with a 4.5% APY at age 20, you'll earn almost $6,100 in interest by age 65.
What are the drawbacks to high-yield savings? ›
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. But for most people, these aren't major issues.
Is there a limit to a high-yield savings account? ›
However, the Federal Reserve Board currently allows consumers to make unlimited withdrawals. Most HYSAs are also FDIC-insured up to $250,000 per account, so your money will always be safe no matter what happens with the economy.
