Can You Lose Money in a High-Yield Savings Account?

Can You Lose Money in a High-Yield Savings Account?

No, you generally can't lose money that's in a high-yield savings account. Typically, high-yield savings accounts are considered a safe way to save your money. Because your account isn't tied to the stock market, the balance is protected from market volatility.

However, like all savings accounts, there's always a risk that the financial institution could go under and won't have enough funds left to fully repay its customers.

But since most banks and credit unions offer insurance coverage through the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA), some or all of your money would be protected in most cases of bank failure. FDIC and NCUA insurance covers balances up to $250,000 per account holder, institution and account category. If you share the account with another person, such as your spouse, you'll have up to $500,000 in coverage.

How You Can Lose Money With a High-Yield Savings Account

It's unlikely that you'll lose money with a high-yield savings account, but there are a few scenarios where it's possible.

• Your balance exceeds $250,000 and the bank fails. If the financial institution goes under and your balance exceeds the $250,000 limit, your money may not be fully insured. To avoid this, spread your savings out among different institutions to stay under the limits.
• The financial institution charges fees. High-yield savings accounts often come with fees that vary widely by financial institution. Before opening an account, carefully check the fine print around monthly service fees, required minimum account balances to qualify for a certain yield, monthly limits on free transfers or withdrawals, and other fees that may apply.
• Other investments might offer better returns. The amount of interest you might earn with an HYSA is generally lower than other types of investments. So you could technically be losing out on some returns. For instance, the stock market has delivered average annualized returns of around 10% for the last century—more than twice what high-yield savings accounts typically return. That said, money invested in the stock market isn't as readily accessible as HYSA funds.

Learn more: High-Yield Savings Account Mistakes to Avoid

How to Earn More With a High-Yield Savings Account

High-yield savings account benefits include a higher interest rate than traditional savings accounts, which can help you earn more on your deposits. Here are a few strategies to help you further maximize your earnings.

• Shop around for the best rate. Some of the best high-yield savings accounts have an annual percentage yield (APY) of 4% to 5%. Average APYs tend to vary by state, but you can sometimes open an account with an out-of-state bank, especially if it's online-only. To find the best rate, compare rates from different banks, credit unions and online banks.
• Automate your deposits. Scheduling deposits at regular intervals can help you meet your savings goals faster. You can typically set up direct deposits into a high-yield savings account from your paycheck or transfers from another account, like a checking or savings account.
• Take advantage of special offers. Some high-yield savings accounts offer incentives that can help you earn more. These may include a higher APY for depositing a certain amount each month and other bonuses.

Learn more: How to Open a High-Yield Savings Account

Alternatives to a High-Yield Savings Account

A high-yield savings account is a good option for many short- and medium-term financial goals. But it's not always the best fit for everyday expenses or longer-term goals, like retirement. Here are a few alternatives to consider.

• Certificate of deposit (CD): A certificate of deposit may offer a higher APY than a high-yield savings account. But you need to keep your money locked in a CD for a set amount of time. If you need to access the funds early, you could be hit with an early withdrawal penalty.
• Money market account: For everyday expenses, a money market account offers easy access to funds with checks or a debit card. It functions like a hybrid of a checking and savings account, but it usually comes with a higher interest rate than a checking account and many traditional savings accounts.
• Investment account: For longer-term goals, like retirement, investing money in a brokerage or retirement account may help you earn more on your investments than a high-yield savings account.

Frequently Asked Questions

The Bottom Line

A high-yield savings account is one of safest options for short- and medium-term savings—even in a turbulent economic climate. But you could still be on the hook for fees. It's important to make sure you understand how your account works to avoid paying extra charges. APYs and fees vary widely by financial institution, so it's a good idea to compare options to find the best high-yield savings account for your savings goals.