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A high-yield savings account isn't just a stable place to stash your cash. Thanks to the higher interest rate, money in a high-yield account will grow at a faster rate than a traditional savings account.
And even though the economic fallout from the coronavirus pandemic has caused savings account interest rates to drop to nearly half of what they were a year ago, you can still earn over 10 times more interest than the national average.
For those looking to grow their money, here are the pluses and minuses that come with having a high-yield savings account:
Everyone should have some cash savings on hand for emergencies and short-term financial goals. And the smartest place to store that money is in a high-yield savings account.
Here are some of the pros to opening a high-yield account:
- Although the interest rates now hover around 1%, this yield still outpaces the 0.06% return you'd earn keeping your money in a traditional bank savings account.
- Because these savings accounts compound interest daily, you're earning interest each day, and you don't have to start with much to save over time. For example, CNBC Select calculated that by making a $20 weekly deposit, you can save $1,000 in one year (which equates to saving less than $3 per day).
- You don't take on any risk depositing your cash into a high-yield savings account that is FDIC-insured up to $250,000. Your money is safe if something were to happen, such as a run on the bank.
- The money sitting in your high-yield savings is accessible if you ever need to tap into it.
- The best high-yield savings accounts come with no additional costs, such as monthly fees, and low (or no) minimum deposits and balance requirements.
- Because the highest-yield savings accounts are online, most make it easy to manage your money on-the-go with mobile banking apps.
- Savers can easily transfer their money between their high-yield savings account and other bank accounts.
- Best overall: Marcus by Goldman Sachs High Yield Online Savings
- Best for checking/savings combo: Ally Online Savings Account
- Best for easy access to your cash: Synchrony Bank High Yield Savings
- Best for earning a high APY: Vio Bank High Yield Online Savings Account
- Best if you want extra help saving: Varo Savings Account
While there are a lot of upsides to putting your money into a high-yield savings accounts, there are a few downsides to keep in mind.
Here are some of the negatives:
- Interest rates on high-yield savings accounts are variable and can fluctuate at any time, so while a bank may advertise a high annual percentage yield (APY) when you apply, it likely won't last forever.
- While you can grow your money daily and take on zero risk with high-yield savings, they are not the best way to grow your wealth long-term. The rate of inflation can be higher than the yield you earn over time, so it's better to not keep piling cash into your savings and instead invest your money.
- Your savings are accessible, but only up to a certain number of withdrawals before you're hit with a fee. The federal withdrawal limit for online savings accounts restricts the number of times you can access your cash each month. High-yield savings account holders can only withdraw or transfer money (including electronic transfers, checks and wire transfers) out of their account up to six times per month without having to pay a penalty fee or risk having their account closed.
- Most of the online high-yield savings account banks don't have a physical bank location.
- While some savings accounts offer ATM cards for easily withdrawals, not all online banks do.
- You can transfer your funds from one bank to another but it may take some time, typically 24 to 48 hours.
In general, high-yield savings accounts are an essential financial product when you're building an emergency fund or saving up for a something in the near future, like a family vacation.
You can maximize the return on your money more so than in a brick-and-mortar bank account, your cash is safe and you can access it if you need to.
Information about Marcus by Goldman Sachs High Yield Online Savings, Ally Online Savings Account, Synchrony Bank High Yield Savings, Vio Bank High Yield Online Savings Account, and Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Goldman Sachs Bank USA is a Member FDIC.