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Pros and Cons of a High-Yield Savings Account

Written by Hancock Whitney | June 30, 2025

High-yield savings accounts are a great option when you’re exploring the best ways to build your savings and grow your wealth. Of course, there are several other types of savings accounts and investment options available to choose from, and depending on your financial situation and goals, one of these other account options might be more appropriate.

When making the decision on whether you should open a high-yield savings account, it’s important to fully understand how the account works. From there, you can evaluate all of the pros and cons of high-yield savings accounts and make an informed decision on whether this type of account is right for you.

 

What Is a High-Yield Savings Account?

A high-yield savings account works very similar to a traditional savings account, differing primarily in the interest rate. The idea is simple: You deposit money into your savings account, and as long as the funds stay in the account, they accrue interest at regular intervals that add to the total money in the account. Even better, savings accounts benefit from compound interest. This means that the interest earned by the account will also earn further interest.

When compared to traditional savings accounts, high-yield savings accounts have a substantially higher interest rate, meaning that the money in your account will grow at a much quicker rate. Traditional savings accounts have fairly modest interest rates, paying an average annual percentage yield (APY) of 0.41 percent in the US. By contrast, the APY of high-yield savings accounts is usually around 4 percent1.

 

Pros of High-Yield Savings Accounts

With an understanding of what a high-yield savings account is, it’s possible to evaluate their advantages and disadvantages. Doing this will help you determine whether this type of savings account is the right one to achieve your financial goals.

These are a few of the biggest advantages of high-yield savings accounts:

Bigger Returns Than Traditional Savings Accounts

As mentioned, high-yield savings accounts have higher interest rates than traditional savings accounts. This, of course, means they’ll yield a larger return and help you achieve your savings goal more quickly than a standard savings account.

Lower Risks

When compared to investment accounts, savings accounts are quite stable and are at low risk to lose money. This is because investment accounts are subject to volatility in the stock market.

When invested wisely, investment accounts typically generate higher returns than even high-yield savings accounts. However, should an invested stock (or the stock market as a whole) take a downturn, an investment account could generate a lower return or even lose money.

Savings accounts are insulated from this because their interest rate is independent of the stock market. Interest is simply applied at regular intervals as long as the funds stay in the account.

Easy to Access Funds

Savings accounts are highly liquid, meaning that their funds are easy to access. With investment accounts, you need to sell your stocks before you can access money. Similarly, with a certificate of deposit (another popular saving method), your funds can’t be accessed without penalty until the account’s maturity date (which could be anywhere from six months to over five years from the account’s opening date).

This makes a high-yield savings account a great option if you want your savings to be easily accessible, such as with an emergency fund. Of course, you do need to be mindful of any withdrawal or transfer limits your account might have. The majority of high-yield savings accounts provide a certain number of “free” transactions, so as long as you aren’t over-accessing your account (which would defeat its purpose of saving money), you aren’t likely to run into issues.

FDIC-Insured

As a deposit account, high-yield savings accounts are FDIC-insured. This means that the account carries deposit insurance provided by the Federal Deposit Insurance Corporation. In the event of a bank failure, the funds within the account are insured by up to $250,000. This adds an extra layer of security and risk mitigation to high-yield savings accounts that investment accounts don’t have.

 

Cons of High-Yield Savings Accounts

High-yield savings accounts have a number of marks in their favor, but now it’s time to take a look at the “cons.” It’s important to note that these things aren’t necessarily bad; they’re simply factors that need to be considered when determining if another saving method makes more sense for your financial needs and goals.

Potential for Higher Returns in Other Saving and Investment Options

While high-yield savings accounts provide higher returns than traditional savings accounts, there are other saving options that can potentially provide even higher returns. This usually comes with the balancing factors of higher risk, however.

As mentioned earlier, investment accounts can provide excellent returns that help you achieve your financial goals more quickly than a high-yield savings account. However, this requires careful investing, preferably with help from an experienced financial advisor, and the understanding that market volatility means that you can’t accurately predict exactly when you’ll hit your savings goal.

Limits on Transfers and Withdrawals

Some high-yield savings accounts place limits on how many withdrawals and transfers you can make within a single cycle. It’s important to understand the terms and conditions of your account and plan accordingly, leaving yourself some leeway in the event of an emergency.

Savings accounts offer excellent liquidity and ease of access to funds, but it’s necessary to be mindful of any transfer and withdrawal limits your account might have.