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What Are the Pros and Cons of High-Yield Savings Accounts?

  • With a high-yield savings account, you can earn more interest than you do with a regular checking or savings account.
  • It’s important to review the terms of any account, as some high-yield savings accounts have minimum balance requirements or fees.
  • Often, high-yield savings accounts are offered by online-only banks.?
  • High-yield savings accounts are typically FDIC-insured.

Weighing high-yield savings accounts pros and cons is a good idea before you open a new account. This guide digs into the benefits and disadvantages of high-yield savings accounts.

We’ll explore the answers to these questions:

  • What is a high-yield savings account?
  • Is such an account right for you?
  • Are high-yield savings accounts safe?
  • What should you consider when shopping for high-yield savings accounts?

Our top picks for savings accounts

What is a high-yield savings account?

A high-yield account pays above-average interest earnings. As of February 2024, the average interest rate for savings accounts was 0.46%, according to the FDIC. Some of the best high-yield savings accounts offer APYs of 4% or higher as of February 2024.?

Pros and cons of high-yield savings accounts

Here’s a quick look at the pros and cons of high-yield savings accounts. We’ll explore each of these benefits or disadvantages more in the sections below.?

Pros and cons of high-yield savings accounts

Pros
  • Earn a higher rate of return on your balance
  • Your interest compounds daily
  • Funds are FDIC-insured
  • Low-risk investment
  • Potential for no or few fees
  • Easy access to your funds
  • Online access to manage your account
  • Low barrier of entry
Cons
  • Not the highest rate of return
  • Interest rates can vary
  • Withdrawal options may be limited
  • Most don’t come with ATM cards
  • Potential for fees
  • Many don’t have local branches

Get to know some of the following high-yield savings accounts:

Bank APY Monthly fee Minimum opening deposit Savings account
Western Alliance 5.22% $0 $1 Learn more
Barclays 4.35% $0 $0 Learn more
UFB Direct 5.25% $0 $0 Learn more
LendingClub 5.00% $0 $100 Learn more
Synchrony 4.75% $0 $0 Learn more

Figures are correct as of June 2024. Although this table is updated regularly, the availability of the savings accounts listed through our partner may vary. In this case, check with the respective financial institution for the most up-to-date information.

Pros of high-yield savings accounts: What are the benefits?

High-yield savings accounts come with plenty of benefits, especially when compared to traditional savings accounts. ?

Earn a higher interest rate

The APY on high-yield savings accounts is higher than it is with traditional banking accounts—often many times higher. Some high-yield savings accounts earn as much as 5% APY.

Interest compounds daily

Most banks offering these accounts compound interest daily and credit it to your account once a month. Daily compounding leads to more savings when you hold balances in your account over a long period of time.?

FDIC insurance

Savings accounts at?FDIC member?banks are covered by deposit insurance. That means you’re protected for up to $250,000 in deposits per account per person. This creates safety for your investment. ?

Your investment risk is low

On top of the fact that your deposits are protected by federal insurance, you have a guaranteed return. While APY percentages might vary over time, these high-yield savings accounts do always yield something. ?

Potentially low costs

To remain competitive in the market, many banks offer high-yield savings accounts with relatively few — or even no — fees. This is especially true with online banks, which don’t have overhead expenses associated with managing local branches. They can pass on those savings to account holders by cutting fees.

Easy to access your funds

With a savings account, you don’t run into the liquidity issues you might have with other investments, such as certificates of deposit. You can access your funds anytime, but you might have to pay withdrawal fees if you surpass the limits set on your account.?

Easy online access

Most banks offer online account management tools for savings accounts — and certainly, that’s the case if you choose an online-only bank. This can provide peace of mind as you can check your account anytime. It also supports convenience because you can manage deposits, withdrawals and transfers right from your smartphone.?

Low barrier of entry

Most high-yield savings accounts don’t have a minimum opening deposit requirement. This lets you get started with savings with any amount.?

Cons of high-yield savings accounts: What are the drawbacks?

Of course, you need to weigh the potential disadvantages of a high-yield savings account with the pros before you make a decision.?

You might be missing out on a higher return

These types of savings accounts do not offer the highest possible return, even among low-risk bank-related investments. You may be able to earn more money with a certificate of deposit, for example. It’s worth reviewing all your options before you open an account.?

Variable interest rates

Banks typically note that the APY is variable, which means it can fluctuate over time. That means the amount you earn on your investment can drop below the inflation rate. If your only goal is to earn interest on your funds, these types of accounts aren’t the best long-term option.

Limited withdrawals

In the past, there was a regulation that required banks to limit the number of withdrawals someone could make from these types of savings accounts within a certain period of time. While that’s no longer the case, many banks still apply thresholds. You might be limited to a certain number of withdrawals each month or a maximum dollar amount before you pay extra to access your funds.?

No ATM cards

While a few banks do offer ATM cards for their high-yield savings accounts, most do not. So, you can’t typically get immediate access to your cash.

Some banks charge fees

Some banks charge monthly maintenance fees for these accounts, which can limit or even wipe out your actual earnings. Some also have minimum balance requirements, requiring you to keep an average balance of thousands of dollars to avoid monthly fees.?

No physical bank locations

Many high-yield savings accounts are offered by online banks. You would not have access to a local branch where you can get face-to-face help managing your account — or make withdrawals for fast access to cash.?

Are high-yield savings accounts safe?

Yes, high-yield savings accounts are generally considered to be very safe — or low-risk — investments. There really aren’t a lot of risks with high-yield savings accounts, especially if your funds are FDIC-insured. You are very unlikely to lose your money in this case.?

However, the rate of interest you earn can fall under the inflation rate. That can mean you’re not really earning anything when you account for buying power. You also need to keep your balance lower than the FDIC insurance threshold of $250,000 per account per person for it to be covered.?

How can I tell if a high-yield savings account is safe?

Make sure the bank is an FDIC member. You might also want to read customer reviews to ensure the bank offers the?level of service you desire.?

Should I get a high-yield savings account?

If you’re planning to open a savings account, there usually isn’t a reason not to opt for a high-yield version. If, however, you prefer to bank locally and don’t want to manage your account online or via mobile apps, you might choose to forgo the higher APY for in-person service.?

What to consider when choosing a high-yield savings account

When you’re shopping for a high-yield savings account, consider the following factors:

1

APY.

How much interest does the account earn? Over time, a single percentage point can make a big difference in how much you earn.

See More See Less
2

Compounding frequency.

Look for accounts that compound interest daily, as this maximizes earnings potential.

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3

Convenience.

Does the bank offer easy access to funds with an ATM card, or can you make deposits via a mobile app?

See More See Less
4

FDIC insurance.

Only bank with institutions that are FDIC members. This provides you with the peace of mind that your funds are covered by federal deposit insurance in the event of a bank collapse

See More See Less
5

Fees.

Review the fee structure for any account you consider. First, look at whether there is a monthly maintenance fee — typically, accounts that don’t charge such fees are better for overall savings. You might also want to consider what fees you might pay for withdrawals and transfers.

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6

Minimum balance.

Some high-yield savings accounts require you to keep an average minimum balance to avoid monthly fees. Consider whether it’s realistic for you to maintain such a balance.

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7

Opening deposit.

Some banks require a minimum opening deposit to start a high-yield savings account. If you want to start saving with a small amount, look for an option that doesn’t have this requirement.

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8

Withdrawal limits.

Consider whether there are any withdrawal limits, including how much you can take out of your account daily and monthly. Choose an account that best supports your personal financial needs in this regard.

See More See Less

How to open a high-yield savings account

To open a high-yield savings account online, follow these steps:

  1. Research accounts and find the best savings account option for you.
  2. Complete the online application with the bank.
  3. Provide your full name, a valid residential address, contact information and your Social Security or tax ID number.
  4. Upload proof of identification, which typically requires at least a government-issued photo ID.
  5. Fund the account, which you can usually do with an electronic funds transfer from an external checking or savings account.

Alternatives to high-yield savings accounts

While the pros of high-yield savings accounts tend to outweigh the cons, you might find a banking option that works better for your goals.?

Some alternatives include:

Our top picks for savings accounts

FAQ: Pros and cons of high-yield savings accounts

Is it worth putting money into a high-yield savings account?

If you want to set money aside in savings, earn more than the average for traditional savings accounts and maintain fairly easy access to your funds, a high-yield savings account may be worth it. You can earn hundreds or even thousands of dollars in interest over long time periods, but how much you earn depends on how much you put in the account and how long you leave it there.

Is there a downside to high-yield savings accounts?

Some potential downsides to high-yield savings accounts include potential fees and minimum balance requirements. If you’re not comfortable with online banking, the lack of a local branch could be a disadvantage.

Can you lose money with a high-yield savings account?

No, you can’t lose your money with a high-yield savings account. Whatever you deposit remains in your account, and FDIC insurance protects it against a catastrophic failure of the bank.

Is it hard to take money out of a high-yield savings account?

Because online savings accounts of this nature don’t typically come with an ATM card or check-writing abilities, you may need to transfer money from your savings account to another account to access it. However, this is usually easy to do via the mobile app or your online account.

Should I move all my money to a high-yield savings account?

You shouldn’t put all your money in any one type of investment. A diversified approach to savings is best.

Are high-yield savings accounts safe in a recession?

Yes, your money is safe in a high-yield savings account even in a recession. Your balance won’t fluctuate with the market, and the money you put into the account remains in the account until you take it out.

About the Author

Sarah Stasik
Sarah Stasik Personal Finance

Sarah Stasik is well versed in personal finance thanks to her previous role as a Revenue Cycle Manager for a Fortune 500 healthcare company. Using her inside knowledge and expertise, Sarah often covers topics ranging from insurance and the economics of private healthcare to personal finance and small business management.

With more than a dozen years of writing experience, Sarah has tackled niches that range from technical advances in fintech to personal budgeting challenges. She has covered topics such as insurance and the economics of private healthcare, small business management and accounting, and credit and savings. Her writing focuses on making complex or seemingly daunting financial topics more accessible and providing helpful and relevant resources for readers.

About the Reviewer

Blake Esken
Blake Esken Los Angeles Times

Blake Esken has over 15 years of experience in product management and has been a member of the Los Angeles Times staff for over five years.

As part of his role at the Los Angeles Times Commerce Team, Blake acts as the in-house reviewer and fact checker for LA Times Compare. He supervises all content for compliance and accuracy and puts to use skills he has honed through years of experience managing high-stakes projects for a range of industry-leading companies.

He has a strong background in data analysis, compliance, and communication, which allows him to support LA Times Compare through fact-checking in an effort to provide up-to-date and factual information across our content.

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