Pros and cons of a high-yield savings account (2024)

Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate as the Fed rate changes. CNBC Select will update as changes are made public.

High-yield savings accounts (HYSAs)aren't just a stable place to stash your cash: Thanks to their higher returns, your money will grow faster than in atraditional savings account.

If you need to build your emergency fund or are working toward paying for a wedding, a dream vacation or a down payment, a HYSA makes perfect sense. But there are still drawbacks to consider.

Below, we discuss the pros and cons of high-yield savings accounts.

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. Many of CNBC Select's picks for best HYSAs are fee-free, come with low or no balance requirements and include ATM cards.

Marcus by Goldman Sachs' high-yield account, for example, doesn't limit how much money you can withdraw. (There is a limit of six withdrawals and transfers per monthly statement period, however.)

If you pair your HYSA with anAlly Bank Spending Account(Ally's checking account product), you'll get access to more than 43,000 free AllpointATMs. Ally will even reimburse out-of-network ATM fees up to $10 per month.

The Synchrony Bank High Yield Savings account comes with an optional ATM card with six free withdrawals per statement cycle. Synchrony will refund ATM fees in the U.S. up to $5 per cycle.

There are many benefits to opening a high-yield savings account.

Higher returns

As the name implies, high-yield savings accounts give you a higher rate of return on your deposits. Because this interest compounds daily or weekly, you don't have to start with much to build up a nice chunk of cash.

Lower risk

High-yield savings accounts are a safer option than stocks, bonds, ETFs, cryptocurrency and other investments exposed to the risks of the market. Just like your regular checking and savings accounts, the money in most high-yield savings accounts is insured by theFederal Deposit Insurance Corporation up to $250,000.

Of course, the APY for any savings vehicle cango up or down, especially if the Federal Reserve changes its benchmark fund rate.

Accessibility

Unlike CDs, which are locked in for a fixed term, you can withdraw and transfer funds in an HYSA without any penalty. That could be helpful if you're nervous about an unexpected expense. Many accounts provide optional access to an ATM card, though the number of transactions or amounts you can withdraw may be limited.

Fewer fees

The best high-yield savings accounts come with no monthly fees and low (or no) minimum deposit or balance requirements. Online institutions with high-yield savings accounts can accomplish this partly because they have less overhead costs than a brick-and-mortar bank, and they choose to pass the savings on to their customers (and create a more competitive product) by offering a higher APY.

While there are a lot of upsides to putting your money into a high-yield savings account, there are a few downsides to consider.

Fluctuating rates

Interest rates on high-yield savings accounts are variable and can change at any time — a bank may advertise a certain APY when you apply, but it likely won't last forever.

Limited growth

While you can grow your money with a high-yield savings account, it's not the best way to generate long-term wealth for retirement because the yield often doesn't keep up with inflation. As a result, working with a broker or robo-advisor to develop an investment portfolio is better for long-range plans.

Fees and minimum requirements

None of the banks on CNBC Select's best high-yield savings account list charge monthly fees, but some others do. And that tempting APY may require a minimum balance or may have a cap on it. Varo Savings account's highest APY is only available for the first $5,000, for example, and only if you direct deposit at least $1,000 a month and have a positive balance at the end of the month. Otherwise, the yield drops to a lower rate.

Limits on withdrawals

Even high-yield savings accounts that don't limit how much you can transfer or withdraw from your account may cap how many times you can do it per cycle. And some online banks with HYSAs offer ATM cards — and will even refund ATM fees — not all do. You can transfer funds between banks but it takes time, typically 24 to 48 hours.

Few brick-and-mortar banks

Most high-yield savings accounts are offered by online-only financial institutions, not those with physical locations. If you prefer in-person banking, that might be a drawback.

If you're thinking about opening a high-yield savings account, consider these actors:

• Annual percentage yield
• Interest compounding
• Account fees
• Opening deposit and balance minimums
• Is it FDIC-insured?
• Limits on withdrawals and transfers
• Other financial products offered by the bank

If you're trying to decide between a high-yield savings account and a CD, think about your savings goal. CDs usually offer higher interest rates than high-yield savings accounts but require you to lock your money away for a set term, which can range from one month to 60 months. This makes CDs less ideal if you need quick access to your funds, such as for an emergency fund. However, a CD could be a good option if you're confident you won't need the funds until the term ends and want to secure a fixed rate.

On the other hand, high-yield savings accounts are more flexible with withdrawals, making them better for emergency funds. Although the rates on these accounts are variable and can change, they typically offer higher returns than traditional savings accounts. High-yield savings accounts are also great for short-term goals, like saving for a new car, an upcoming vacation, or a down payment on a home.

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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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