Are High-Yield Savings Accounts Still Worth It?

Interest rates have been on a wild ride over the last two years. With the Federal Reserve holding its benchmark rate steady, many savers are wondering if keeping their money in a high-yield savings account is still the smartest move. If you are sitting on cash, here is exactly what you need to know about your options today.

The Current State of Interest Rates

To understand if a high-yield savings account (HYSA) is a good deal right now, you have to look at the broader economy. The Federal Reserve has held its target federal funds rate between 5.25% and 5.50% for several months to combat inflation.

Because the central bank sets the tone for borrowing costs, consumer banks adjust their deposit rates to match. This means the best online savings accounts are currently paying out some of the highest interest we have seen in over a decade.

If you keep your money at a traditional brick-and-mortar bank like Chase or Bank of America, you are likely earning close to the national average of 0.46%. In contrast, top online banks are paying ten times that amount. Earning 5.00% on a $10,000 balance yields $500 over a year. Earning 0.46% on that same balance gets you a meager $46.

Why HYSAs Are Still a Smart Move

Even as financial experts debate when the Federal Reserve might eventually cut rates, high-yield savings accounts remain incredibly valuable. Here is why you should keep a portion of your cash in one.

You Are Beating Inflation

For a long time, keeping cash in a bank meant losing money to inflation. If inflation is 3.5% and your bank pays 1%, your purchasing power is shrinking. Currently, the US inflation rate is hovering around 3.4% to 3.5%. With several HYSAs paying 4.50% to 5.00% or more, your cash is actually growing faster than the cost of everyday goods. You are finally earning a positive real return.

Complete Liquidity

The main purpose of cash is to be available when you need it. High-yield savings accounts allow you to withdraw your money quickly without any penalties. While some banks limit you to six withdrawals per month, you can generally transfer money back to your primary checking account within one to three business days.

Ironclad Safety

Investing your money in the stock market is the best way to build long-term wealth, but the market can drop 20% in a given year. Your cash needs to be safe from stock market crashes. Almost all reputable HYSAs are backed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This means your money is insured up to $250,000 per depositor, per institution. If the bank fails, the government guarantees you will get your money back.

Top High-Yield Savings Accounts Right Now

You do not need to settle for low rates. Several reputable financial institutions are offering excellent yields as of mid-2024.

Wealthfront Cash Account: Currently offering 5.00% APY. Wealthfront is a robo-advisor, but its cash management account functions like a high-yield checking and savings hybrid. They also sweep your money across partner banks to offer up to $8 million in FDIC insurance.
SoFi Checking and Savings: Offering up to 4.60% APY. To get this top rate, you do need to set up direct deposit with them.
Marcus by Goldman Sachs: Offering 4.40% APY. Marcus is known for its simple interface and lack of hidden fees.
Ally Bank: Offering 4.25% APY. Ally also offers great features like savings “buckets” to help you organize your money for different goals.
Western Alliance Bank: Frequently offers rates above 5.30% APY through the Raisin platform.

Alternatives to Consider

If you want to maximize every dollar, an HYSA is not your only option. Depending on your timeline, you might want to look at a few safe alternatives.

Certificates of Deposit (CDs)

When you open a CD, you agree to lock your money away for a specific period (like 6, 12, or 18 months). In exchange, the bank guarantees your interest rate for that entire term. If the Federal Reserve cuts interest rates next month, HYSA rates will drop immediately. Your CD rate, however, will not change. You can currently lock in a 12-month CD with Capital One 360 at 5.00% APY.

Treasury Bills (T-Bills)

Treasury bills are short-term debt issued by the US government. They are sold in terms ranging from four weeks to 52 weeks. Currently, 4-week and 8-week T-Bills are yielding around 5.30% to 5.40%. A major benefit of T-Bills is that the interest you earn is exempt from state and local income taxes. If you live in a high-tax state like California or New York, a 5.30% T-Bill easily outperforms a 5.30% bank account. You can buy them directly at TreasuryDirect.gov.

Money Market Funds

If you keep cash in a brokerage account like Vanguard, Fidelity, or Charles Schwab, you can buy money market funds. These funds invest in extremely safe, short-term government debt. The Vanguard Federal Money Market Fund (VMFXX) is currently yielding around 5.27%.

The Final Verdict

High-yield savings accounts are absolutely still worth it. They are the perfect home for your emergency fund. Financial planners generally recommend keeping three to six months of living expenses in an easily accessible HYSA. You want this money ready for a sudden medical bill, a surprise car repair, or an unexpected job loss.

If you have extra cash beyond your emergency fund that you know you will not need for at least a year, it makes sense to look into a Certificate of Deposit or a Treasury Bill to lock in these high rates before they potentially drop.

Frequently Asked Questions

Can I lose money in a high-yield savings account? No, as long as your bank is FDIC-insured (or NCUA-insured for credit unions) and your balance is under the $250,000 limit. Your principal balance will never decrease due to market changes.

How often do HYSA interest rates change? Interest rates on savings accounts are variable. The bank can change your rate at any time without prior notice. Rates usually change when the Federal Reserve raises or lowers its benchmark federal funds rate.

Are online banks safe to use? Yes. Online banks like Ally, Marcus, and Discover are highly regulated and carry the exact same FDIC insurance as physical banks like Chase or Wells Fargo. Because they do not have to pay for expensive physical branches, they pass those savings on to you in the form of higher interest rates.