Are High-Yield Savings Accounts Worth It?

Pros and Cons of High-Yield Savings Accounts

High-yield savings accounts offer some attractive benefits, but they aren't perfect for every savings goal. Understanding the pros and cons can help you decide if it's the right low-risk investment—or if your money would be better off in a different type of savings account.

What Should You Use a High-Yield Savings Account For?

A high-yield savings account can help your money work a little harder. They're particularly well-suited for the following:

• Holding your emergency fund: A common benchmark is to save three to six months' worth of basic expenses in your emergency fund. This safety net could be useful if you experience a loss of income or receive a surprise bill.
• Saving for short-term goals: Certificates of deposit (CDs), 401(k)s and traditional IRAs all charge early withdrawal penalties. High-yield savings accounts offer much easier access to your money. That can be handy when saving for near-term financial goals, whether that's a down payment on a home or an upcoming wedding.
• Saving for non-monthly bills: Certain bills may come up at odd times throughout the year, like an insurance premium you pay every six months. Saving little by little in a high-yield savings account can make it easier to cover these bills when they come due.

Should You Open a High-Yield Savings Account?

If you're looking for a safe place to hold your emergency fund or save for short-term goals, a high-yield savings account may be worth it. You can earn an above-average interest rate and will have easy access to your money—with low, or no, fees.

But a high-yield savings account generally isn't the best place to save for long-term goals like retirement. Investment accounts carry more risk but can help you build your nest egg over time. The average annual stock market return has historically been around 10%.

How to Open a High-Yield Savings Account

You can follow these simple steps to open a high-yield savings account.

1. Choose an Account

Compare account features to help you decide which bank or credit union is right for you. Be sure to consider:

• APYs
• Fees
• ATM availability
• Opening deposit requirements
• Account balance requirements

It's also wise to read online reviews to see what past and current customers have to say.

2. Gather Your Documentation

You'll likely need to provide your basic contact information, along with a government-issued photo ID and a second form of identification. That may be a birth certificate or Social Security number.

3. Complete the Application

You might do this in person or online. The bank or credit union will likely pull your ChexSystems report to review past bank account information. Your credit score will not be a factor, but your application could be denied if you've had previous overdrafts or unpaid bank fees.

4. Link Your Existing Account

If your application gets the green light, you can use your online banking dashboard to link your checking account to your new high-yield savings account. This can allow for seamless transfers between both accounts as needed.

5. Fund Your Account

You might add funds to your high-yield savings account through:

• A transfer from your linked bank account
• A cash deposit at an ATM
• A direct deposit from your paycheck

Frequently Asked Questions

The Bottom Line

High-yield savings accounts are usually worth it if you're saving for short-term goals or need a safe account to hold your emergency fund. But if you have a longer time horizon, an investment account may be the better option. If you do opt for a high-yield savings account, do your research and compare banks and credit unions to find the best rate and lowest fees.