Pros and cons of high-yield savings accounts: Key benefits and potential drawbacks

If you want your savings to keep pace with inflation – and even grow faster – keeping your money in a regular savings account just won’t cut it. Traditional banks offer very low interest rates, relying on the fact that many people don’t closely monitor the returns on their accounts.

How much money are you losing with a traditional bank? Data from the Federal Deposit Insurance Corporation (FDIC) shows that the average savings account nationwide paid just 0.40% as of September 2025, which is the national average. This means someone with $10,000 on deposit would earn an average of $40 in interest over the course of a year. The annual percentage yield (APY) is the key metric for comparing savings account returns, as it reflects the effect of compound interest over a year. High-yield savings accounts often exceed the average interest rate found at most banks, with the average high-yield savings account paying over 4.00% interest, meaning the same $10,000 in savings would earn a $400 return over the same timeline.

Fortunately, high-yield savings accounts aren’t difficult to understand or access. These accounts work the same as regular savings accounts in the fact that they can come with low minimum deposit requirements and limited fees (or no fees), as well as federal protection for deposits through FDIC insurance (look for the Member FDIC designation to ensure your bank is federally insured). This protection applies even if a bank fails, so your funds are safe up to the insured limits. If you’re curious why anyone would open a regular savings account over a high-yield account that pays 10 times more interest and potentially more, read on for an overview of the pros and cons of high-yield savings accounts and how they work.

What is a high-yield savings account?

If you’ve ever wondered what makes high-yield savings accounts different from run-of-the-mill bank accounts, the answer is fairly straightforward. High-yield savings accounts are a type of savings account that pays a much higher interest rate than a traditional savings account. Compared to a standard savings account, high-yield options offer significantly better returns, making them a preferable choice for those seeking higher growth potential for their savings. Beyond that, a high-yield savings account works just like a standard account – you deposit money, wait for interest to grow your account balance and withdraw when needed. The dramatic gap in potential earnings is what makes these accounts attractive for savers who want their money to grow faster while still maintaining liquidity and safety.

High-yield accounts are a type of deposit account most commonly offered by various financial institutions, including online banks, credit unions, and sometimes regional banks that want to stay competitive. Because online banks have lower overhead when compared to traditional banks, they can pass those savings along to customers in the form of higher interest rates. Many of these institutions also make account opening and management easy with digital platforms, mobile apps, and 24/7 access.

In terms of safety, the best high-yield savings accounts are protected by FDIC insurance if offered by a bank, or National Credit Union Administration (NCUA) insurance if through a credit union. This means account holders’ deposits are insured up to $250,000 per account holder and per institution, providing peace of mind that your money is safe even if the bank itself fails.

Best high-yield savings accounts

7 key benefits of high-yield savings accounts

While high-yield savings account pros and cons can vary by institution, individual saver, and purpose, several advantages are common across the board. One key benefit of a high-yield savings account is the ability to earn regular interest on your savings, which can help you steadily reach your financial goals. This interest is paid by the bank regularly, allowing your money to grow faster compared to traditional savings accounts. Read on to discover which benefits of high-yield savings accounts matter the most and how they can support smart money decisions.

Higher interest rates than traditional savings

One of the biggest benefits of a high-yield savings account is the ability to earn significantly more interest on your money compared to a traditional savings account. With the average savings account currently earning 0.40% according to the FDIC, know that you can earn a significantly better rate with high-yield accounts from a range of online banks. High-yield savings accounts often advertise their annual percentage yields (APYs), which reflect the total return including compounding, making it easier to compare earning potential across different banks.

This difference between earning 0.40% and 4.00% may seem small at first glance, but it adds up quickly over time, especially for larger balances. These accounts offer a high interest rate compared to traditional options. Imagine you’ve been saving up for a down payment on a house and you have $50,000 stashed away. An account balance of $50,000 earning just 0.40% over three years would return $602.40 in interest. With a high-yield savings account earning 4.00%, however, you would earn $6,243.20 in interest over the same three-year timeline.

Keep in mind that some high-yield savings accounts have a minimum deposit required to access the highest APYs or promotional rates.

Low-risk investment option

A high-yield savings account is one of the safest and most reliable places to keep your money, and for more reasons than one. Unlike stocks or bonds, which can fluctuate in value, the money you deposit in a savings account remains secure and accessible at any time. High-yield savings accounts are not subject to market volatility, making them ideal for preserving cash reserves needed for emergencies or short-term needs. Not only can you earn a competitive interest rate, but you don’t have to stress about losing your principal due to market conditions.

Safety is further reinforced by FDIC insurance (or NCUA insurance for credit unions). This important coverage protects deposits up to $250,000 per depositor and per institution, which means you are protected from financial losses up to these limits if your bank or credit union fails.

For individuals seeking steady growth without volatility, high-yield savings accounts strike the perfect balance – they combine strong returns with peace of mind, making them ideal for emergency funds, short-term savings goals or even long-term savings in a diversified portfolio.

Liquidity and accessibility

High-yield savings accounts also stand out for their accessibility and the fact that they keep your funds fully liquid. While bank offerings vary, the best online banks offer useful web platforms and mobile apps that make transferring money for everyday use a breeze. Online access is crucial, as it allows you to manage your account online from anywhere. Many banks provide a bank’s mobile app that lets you transfer money between accounts and withdraw cash at ATMs.

Need cash quickly? Many banks that offer high-yield savings accounts also give you a debit card you can use to access funds at an ATM. You can also withdraw money or transfer money using linked accounts, and some banks offer free transfers for added convenience.

Keep in mind that some banks may limit how many withdrawals you can make per month, so it’s important to check these restrictions.

Minimal or no fees

The best online banks let users open a high-yield savings account with a low starting deposit and no ongoing fees required. Many high-yield savings accounts do not charge monthly fees, but some may have a monthly fee depending on the account. Most banks also let users earn interest on any starting balance, even if it’s as low as $50 or $100.

Even so, you’ll want to compare banks based on their account requirements and fees – if they charge any. Where some banks offer fee-free high-yield savings accounts with minimal fine print, others charge a monthly maintenance fee if your balance drops below a required minimum at any point. Other hidden fees to watch for include excessive withdrawal fees, wire transfer fees, paper statement fees, ATM fees, and monthly fees, which can reduce your overall returns, so it’s important to compare fee structures.

Low or no minimum balance requirements

Many banks with high-yield savings accounts let you start saving with as little as $1 to start, whereas others require a starting balance of $100, $500 or more. Some accounts may also have a minimum balance requirement or require an initial deposit to open the account and begin earning interest.

Regardless, you should compare banks to look for accounts that pay the maximum amount of interest based on your starting deposit amount.

Online account management

Another major advantage of a high-yield savings account is the convenience of 24/7 access. Unlike traditional savings accounts that may still rely heavily on in-person banking, most high-yield accounts are offered by online banks and credit unions with robust digital platforms. This means you can check your account balance and transfer funds at any time of the day or night.

Many banks with high-yield accounts also offer tools that help users stay on top of their goals and save more conveniently. These tools can include instant balance updates, transaction alerts, mobile check deposit and goal-tracking dashboards to help users visualize their savings progress. Many apps also integrate with budgeting software, giving you a clear picture of your finances in one place. Setting up direct deposit into your high-yield savings account can help you consistently grow your balance and may qualify you for higher APYs or promotional offers.

Multiple account options

High-yield savings accounts can also be highly flexible if you want to start saving money with another person toward a joint goal, or if you want to break up your savings into different “buckets” for different upcoming costs.

The best online banks even let you set up different subaccounts within your high-yield savings account, allowing you to allocate funds for multiple goals such as emergencies, vacations, a house down payment, or college tuition. This feature simplifies tracking your progress toward each specific savings objective, making it easier to manage and prioritize your finances effectively.

5 potential drawbacks of high-yield savings accounts

While high-yield savings accounts definitely have their advantages, there are some downsides to keep in mind as well. Just note that the pitfalls of high-yield accounts can also vary from person to person based on their goals. It may not be wise to keep all your money in a high-yield savings account, as diversification can help balance risk and return.

Variable interest rates

While high-yield savings account rates are usually higher than you’ll find with traditional banks and credit unions, they can and do change over time. Each financial institution sets its own rates based on market conditions and internal policies, so rates may vary and adjust as these factors change. Fluctuations in savings rates tend to follow rate changes to the federal funds rate by the Federal Reserve, which are different from year to year.

Since the Federal Reserve just announced a rate cut in September of 2025 and hinted that a few more could be on the way, you can expect high-yield savings accounts to pay out less in the future. This may not be a huge deal to you based on your goals, or it could mean you should look for account with a guaranteed rate, like a certificate of deposit (CD).

Limited branch access

Some (but not all) banks with high-yield savings accounts are online-only, meaning there aren’t any physical bank branches to visit if you want in-person help with your account. Other banks have limited branch access nationwide, or are only available in a handful of states.

The lack of physical branches with some banks can also make depositing cash almost impossible, although some online institutions allow cash deposits through specific third parties. Fortunately, most online banks offer mobile check deposits and easy online transfers from other banks.

Withdrawal limitations

While the best high-yield savings accounts offer easy online withdrawals and transfers of funds, they don’t offer the same liquidity as checking accounts. This is due to something called Federal Regulation D, which historically limited certain withdrawals and transfers from savings accounts to six per month, including online transfers, automatic payments, and checks.

While banks may no longer enforce this limit due to regulatory changes in 2020, some institutions still impose their own restrictions or charge fees for excessive transactions. You can withdraw funds from your high-yield savings account, but if you exceed the allowed number of withdrawals, you may face additional fees or restrictions.

Transfer delays

Another potential downside is how long it can take to transfer and receive funds. ACH transfers between bank accounts can take anywhere from one to three business days to go through, which makes it difficult to access money in an emergency.

Then again, some online banks can transfer funds to a different account within the same business day. This is yet another factor you’ll want to compare when looking for the best online savings accounts.

Potentially higher minimum balance requirements

Also note that high-yield savings account requirements vary by institution. Some may require you to have $1 or more to open an account, whereas others let you open an account with a $0 starting balance. Other banks require you to have $100, $500 or even $2,500 to open a high-yield savings account, earn their highest advertised APY, or both.

Some banks also require you to maintain a certain balance to avoid monthly maintenance fees. Once again, these are important details to consider as you look for the best high-yield savings account for your needs and goals.

Potential earnings calculator

Curious how much interest you could earn? This high-yield savings account calculator gives you an estimate of your potential earnings based on today’s best rates. The calculator also factors in how interest compounds over time, which can significantly increase your total earnings.

How much will $10,000 make in a high-yield savings account? How much will $20,000 make in a high-yield savings account? Input your details to find out.

Frequently asked questions about high-yield savings accounts

What are the disadvantages of a high-yield savings account?

High-yield savings account rates can fluctuate with market conditions, so your returns aren’t guaranteed long-term. Some accounts may require a minimum balance or limit monthly withdrawals, which creates the potential for fees.

Unlike investments in stocks or bonds, growth in high-yield savings accounts tends to be modest compared to higher-risk options. Accounts offered by online banks may also lack in-person support, which can be inconvenient for those who prefer traditional banking services.

How much will $10,000 make in a high-yield savings account?

After one year, $10,000 in a high-yield savings account with a 4.00% APY will earn $400 in interest. After three years, the account balance will grow to $11,248.64.

If you keep the same amount on deposit for five years with the same rate, the account balance will grow to $12,166.53.

What happens if you put $50,000 in a high-yield savings account?

After one year, $50,000 in a high-yield savings account with a 4.00% APY will earn $2,000 in interest. After three years, the account balance will grow to $56,243.20. If you keep the same amount on deposit for five years with the same rate, the account balance will grow to $60,832.65.

How much will $20,000 make in a high-yield savings account?

If you deposit $20,000 into a high-yield savings account that earns 4.00% APY, you’ll have $20,800.00 saved after 12 months. That amount with the same rate would grow to $22,497.28 after three years and $24,333.06 after five years.

Who should consider a high-yield savings account?

Due to the fact that you cannot lose the principal of your balance, these accounts are ideal for building an emergency fund, saving for short-term goals like a vacation or down payment, or simply setting aside extra cash from a checking account.

With higher interest rates than traditional savings accounts, your money grows faster while remaining fully accessible. Features like recurring transfers, mobile app monitoring, and FDIC insurance protection up to $250,000 also make these accounts secure and convenient.

What are the pros and cons of opening a high-yield savings account with a new bank?

New online banks tend to offer the most competitive rates on high-yield savings accounts. However, you’ll want to make sure banks you’re considering offer direct FDIC insurance on deposits.

What are the pros and cons of opening a high-yield savings account with a local credit union?

Your local credit union may offer superior customer service, but they are unlikely to offer the best high-yield savings account rates.

How to choose the best high-yield savings account

While the best high-yield savings accounts share many common features, it’s important to compare your options carefully to find the one that best fits your needs. These accounts are offered by a variety of financial institutions, including traditional banks, online-only banks, and credit unions, each with their own unique features and requirements. Here are some key factors to consider when evaluating high-yield savings accounts:

• Check minimum deposit requirements. Look for high-yield savings accounts that let you start saving with the amount you have right now. This could be as low as $0 or as high as $2,500 with some online banks.
• Compare interest rates. Compare banks and credit unions based on the high-yield savings account interest rates they offer, and look for the highest rate you can find.
• See if you need to maintain a minimum balance. Some banks charge fees if your balance drops below a certain level.
• Look for hidden fees. Check high-yield savings accounts you’re considering for hidden fees like monthly maintenance fees, excessive withdrawal fees, and wire transfer fees.
• Make sure you have the access you need. Compare banks to see if they offer the access you require, which may include physical bank branches, a highly-rated mobile app, a robust online platform, or all of the above. Online access is especially important for managing your account efficiently.
• Check for FDIC or NCUA insurance. Make sure institutions you’re considering offer this important protection for your deposits.

Conclusion

The best high-yield savings accounts offer clear advantages, including superior interest rates, easy 24/7 access, and automated savings options. These accounts are low-risk, FDIC-insured (or NCUA-insured) and ideal for building emergency funds or saving for short-term goals.

However, high-yield savings accounts also come with some drawbacks, including rates that fluctuate, minimum balances on some accounts, withdrawal limits, and a lack of in-person customer support.

While high-yield savings accounts provide a secure, convenient way to grow cash, savers should weigh potential limitations against their personal needs and financial goals before they commit.