Keeping extra funds in a savings account is a great way to grow wealth safely. Most banks offer insurance and include security features that provide higher levels of protection than a traditional piggy bank.
Savings accounts vary in interest rates and the benefits they offer. For example, a high-yield savings account may be among the top choices for individuals and businesses looking to accumulate high earnings. But are high-yield savings accounts safe?
In this guide, we’ll reveal how safe high-yield savings accounts are, explore their benefits and drawbacks, and provide information on the safest account with high interest rates.
How Safe Are High-Yield Savings Accounts?
High-yield savings accounts (HYSAs) provide a safe place to keep and grow your funds. Most of these accounts are insured by either:
- The Federal Deposit Insurance Corporation (FDIC) if you hold your account at a bank
- The National Credit Union Administration (NCUA) if you open an account at a credit union
In both cases, your account is typically insured up to $250,000, meaning you’ll be protected up to that amount if the bank fails. You can check whether your bank offers this type of insurance using the FDIC’s BankFind Suite or the NCUA’s research page.
Benefits of High-Yield Savings Accounts
While HYSAs are safe due to the federal insurance they offer, this isn’t their only benefit. Besides being secure investments, these accounts are also:
- Savings accounts with a higher-than-average APY
- Low-risk money-saving vehicles
- Highly liquid accounts
Savings Account With a Higher-Than-Average APY
The main advantage of HYSAs is that they offer a significantly higher annual percentage yield (APY) than traditional savings accounts.
An APY shows how much interest you will earn in a year. While regular savings accounts currently have an APY of 0.45%, some high-yield savings accounts include APYs higher than 5%.
Let’s say you saved $1,000 in a high-yield savings account and a traditional account. With the interest rates mentioned above, a HYSA would earn you around $50, while a traditional one would only bring you $4.52 in yearly earnings.
Low-Risk Money-Saving Vehicles
HYSAs are safer than investments like stocks and ETFs because their rates aren’t tied to the stock market—they’re unaffected by market volatility, so your risk of losing money is low. However, the APY of HYSAs can increase or decrease if the Federal Reserve changes the benchmark interest rates.
Highly Liquid Accounts
HYSAs provide relatively easy access to funds because you can typically connect them to your checking account. Thanks to this feature, you can withdraw money from an ATM, but you can also make withdrawals by visiting a local branch.
For this reason, HYSAs are a great place to establish an emergency fund or save for short-term financial goals like:
- A vacation
- A wedding
- A downpayment for a car
However, some HYSAs may include withdrawal limits of six withdrawals per month.
Drawbacks of High-Yield Savings Accounts
High-yield savings accounts are a good option if you’re looking for a secure way to earn interest on your savings, but their drawbacks indicate they’re not the best option when saving for long-term goals. This is because they typically:
- Can’t outpace inflation
- Offer lower returns than other investments
- May include fees
Can’t Outpace Inflation
While the interest rates in some high-yield savings accounts are higher than inflation rates, in most cases, these accounts won’t help you earn enough to keep up with inflation. So, if you keep all or most of your savings in a HYSA, inflation may eventually decrease your purchasing power.
This is why you should diversify your investment portfolio. By investing in multiple assets like stocks and mutual funds besides keeping money in a HYSA, you can earn enough to offset the effects of inflation on your HYSA.
Offer Lower Returns Than Other Investments
While HYSAs offer higher returns than regular savings accounts, their rates still aren’t as high as those you’ll get by investing in stocks, mutual funds, and ETFs. For example, the average annual stock market return is around 10%, according to the S&P 500 index.
These types of investing involve higher risk than leaving funds in a HYSA due to stock market volatility, but they also offer higher rewards.
May Include Fees
High-yield savings accounts usually require no monthly maintenance fees, but some banks may charge other types of fees like:
- Withdrawal fees if you exceed the monthly withdrawal limit
- Minimum balance fees if your account balance falls under the required minimum
- Overdraft fees if you reach a negative account balance
Before opening a HYSA, check whether your financial institution charges any fees and look for a bank that offers either low or no fees.
What Is the Most Secure High-Yield Savings Account?
Financial institutions that provide most HYSAs usually aim to include fund security and ease of transfer in one place. However, optimizing both objectives within a single account can be difficult, often resulting in weaker security features. This led many experts to advise against keeping all your money in a single bank account.
For this reason, a bank account with strong security features and high interest rates is the most secure savings account. While most banks flag security flaws once financial fraud has already happened, a high-security banking platform helps you prevent fraud from happening altogether by, for example:
- Blocking electronic debits to the account
- Forbidding transactions with financial institutions previously associated with fraud
The best high-yield savings account that provides such advanced fraud protection features is FortKnox. The platform is designed to protect your funds from fraud and help you earn high interest rates on your savings.
