The online banks that offer high-yield savings accounts typically have few fees. Most high-yield savings account owners won’t pay anything to open an account, and they won’t have to maintain a certain balance to avoid a maintenance fee. Due to these factors, you should only make money with one of these accounts.
High-yield savings account funds are protected by the FDIC up to $250,000 per depositor per bank. This means that even if the bank goes out of business, you won’t lose any money as long as you stay below the FDIC insurance limit for your account.
Drawbacks of a high-yield savings account
Here are a few drawbacks to high-yield savings accounts you should be aware of:
Withdrawing money from a savings account isn’t as easy as getting money out of a checking account. Most savings accounts don’t include debit cards or check-writing capabilities, and some banks charge customers for making more than six monthly withdrawals. This used to be required by a federal regulation known as Regulation D. The government waived it during the pandemic, but some banks still impose these penalties.
Working with an online-only bank also poses some unique challenges to accessing your funds. There’s no branch to visit so you usually have to move money to a checking account before you can withdraw any cash. If your checking account is at a different bank, you’ll have to wait a few days for the funds to transfer.
The APYs on any savings account can change without warning. Sometimes, they might go up, but at other times, they may drop. Dropping rates could mean less interest earned for you. There’s not much you can do about this other than wait for rates to come back up or switch banks.
Not ideal for long-term savings
While a high-yield savings account’s rates are much better than what you can get with most brick-and-mortar banks, they’re probably not going to beat inflation in most years. So while you’re making money, you could be losing buying power. That’s why investing is usually the better choice for money you don’t plan to spend in the near future.
When should you use a high-yield savings account?
A high-yield savings account is a great place to keep the following: