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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:
A high-yield account pays above-average interest earnings. Currently, the average interest rate for savings accounts is 0.46%, according to the FDIC. Some of the best high-yield savings accounts offer APYs of 4% or higher.
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
Get to know some of our top picks for the best high-yield savings accounts:
| Bank | APY | Monthly fee | Minimum opening deposit | Savings account |
|---|---|---|---|---|
| Western Alliance | 4.70% | $0 | $1 | Learn more |
| UFB Direct | apy% | $0 | $0 | Learn more |
| LendingClub | 4.80% | $0 | $100 | Learn more |
| Synchrony Bank | apy% | $0 | $0 | Learn more |
Figures are correct as of October 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.
High-yield savings accounts come with plenty of benefits, especially when compared to traditional savings accounts.
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.
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.
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.
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.
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.
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.
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.
Most high-yield savings accounts don’t have a minimum opening deposit requirement. This lets you get started with savings with any amount.
Of course, you need to weigh the potential disadvantages of a high-yield savings account with the pros before you make a decision.
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.
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.
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.
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 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.
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.
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.
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.
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.
When you’re shopping for a high-yield savings account, consider the following factors:
How much interest does the account earn? Over time, a single percentage point can make a big difference in how much you earn.
Look for accounts that compound interest daily, as this maximizes earnings potential.
Does the bank offer easy access to funds with an ATM card, or can you make deposits via a mobile app?
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
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.
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.
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.
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.
To open a high-yield savings account online, follow these steps:
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:
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.
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.
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.
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.
You shouldn’t put all your money in any one type of investment. A diversified approach to savings is best.
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.
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.
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.
