A high-yield savings account can be a great way to grow your savings at up to 10 times the national average 0.46% on an everyday savings account. And you can open an HYSA at brick-and-mortar banks, credit unions and online financial institutions that insure your deposit for up to $250,000 against bank failure, protecting your money and the interest you earn.
But what if your balance exceeds $250,000? In some cases, you could end up losing money if the bank holding your account were to fail. While losing your money in a high-yield savings account isn’t likely, you’ll want to be aware of FDIC limitations and other potential risks we’ve rounded up to help you maximize the interest you can earn — and avoid hitting limits, triggering fees or missing lower rates that can eat into it.
6 ways you can lose money with a high-yield savings account
Due to government protections, you’re unlikely to lose money with a high-yield savings account, but you can take steps to make sure you’re earning as much interest as you can — and keeping more of it in your own wallet.
Here are the top six financial risks to watch for when considering and managing a high-yield savings account and what to do if you find yourself facing one.
1. You have more than $250,000 in the bank
Deposit accounts like checking accounts, savings accounts, money market accounts and CDs are protected by the FDIC or NCUA for up to $250,000 per depositor, per insured bank. That amount is also limited by ownership category. Ownership categories include single accounts, joint accounts, retirement accounts, business accounts and other categories.
It means that if you’ve saved more than $250,000, you’ll want to take steps to protect your money. For example, if you’re the sole account holder of $250,000 in an HYSA and $20,000 in a checking account at one bank, you risk exceeding your allowable FDIC coverage by $20,000, since FDIC insurance only covers $250,000 per category — in this case, single accounts.
Yet if you’re a joint account holder of $250,000 in an HYSA and $20,000 in a checking account at one bank, you and the co-owner are each provided up to $250,000 in insurance coverage, and so the full $270,000 would be covered by FDIC insurance — $135,000 for your share across these two accounts and $135,000 for the co-owner’s share.
Things become more complicated when you factor in trust accounts, employee benefit plan accounts and other ownership categories. But if you have more than $250,000 on deposit, understand how ownership is categorized for each account. And talk to your bank if you’re not sure how it categorizes your deposits and other accounts.
Dig deeper: 6 best ways to FDIC-insure your excess bank deposits
2. The APY on your high-yield savings accounts goes down
Most high-yield savings accounts come with variable interest rates, which means the advertised APY can change at any time in response to overall market conditions.
Rates on HYSAs strongly correlate with the target federal funds rate set by the Federal Reserve. When it increases the Fed rate, banks tend to offer higher yield rates. But when it lowers the Fed rate — as it’s expected to next month — the APYs on high-yield savings accounts also drop (though rates will still be higher than a traditional savings account).
Periodically check in with the rate you’re currently getting on your HYSA and any other variable rate accounts. You can confirm your rate from your online account, through your banking app or by reviewing your account statement. If you don’t like the rate you see — or if the rate isn’t keeping pace with inflation — move your money to an HYSA offering a higher APY. Compare rates against those offered by digital banks and online accounts, which tend to offer stronger rates than your neighborhood bank due to lower overhead.
💡Expert tip: If you’re looking to lock in your money at rates guaranteed not to change for up to 12 months or longer, consider putting your money into a certificate of deposit instead. CDs tend to attract higher rates of returns than HYSAs, among a few other key differences.
Dig deeper: High-yield savings account vs. CD: What to know when rates are high
3. You’re missing out on higher returns elsewhere
While an APY of 4.5% or more is competitive for an HYSA right now, many other investments can potentially yield you a much higher return over time. As an example, if you invested $10,000 in the S&P 500 index five years ago, that money could be worth just over $18,500 today, based on average 13.18% market returns. That same $10,000 sitting in a HYSA at 5% for five years would have grown to only $12,762.81.
Many investment platforms and online brokers like TD Ameritrade and Betterment allow you to invest in stocks, index funds and other investments that have historically delivered significantly higher returns than savings accounts over the long term.
4. You’re paying high fees and penalties
The best high-yield savings accounts charge low or no fees to store your money and earn high interest. Depending on the account, however, you might be required to pay a monthly maintenance fee if you’re not able to maintain a specific minimum balance. In that case, to avoid a fee, you can set up regular transfers from another account that ensure you’re never at risk of dipping below the minimum — and paying fees that can erode your earnings.
Another area to look out for is withdrawal limits. Despite the Federal Reserve suspending Regulation D withdrawal limits during the pandemic that previously restricted account transactions to six per month, some accounts — like the HYSA from Ally Bank — still limit withdrawals and transfer to around 10 or so before you’re charged a fee. Read the fine print of your account to confirm whether you’re held to similar limitations that trigger fees and penalties. And if you’re not able to meet any limitations, move your money to another account.
💡Expert tip: If you’re looking to earn high yields with unlimited debit and check-writing privileges, consider a high-yield checking account. These checking accounts offer more competitive APYs than your everyday checking with the potential for membership perks on money designed for regular bills and payments.
5. Your bank isn’t financially sound
Despite the marketing, not all banks or financial institutions are financially sound under the hood. Making sure your bank is insured by the FDIC and NCUA is one way to protect your deposits against bank failure, yet another way to assess your bank or financial institution’s overall financial health is to check its credit rating with an independent rating agency like Moody's or Standard & Poor Global Ratings. These agencies assess the creditworthiness of banks, credit unions and fintechs based on their ability to meet financial obligations and repay debts — the higher the rating, the less likely your institution is to fail.
You can also read through your institution’s financial statements, which include balance sheets that itemize earnings, assets and liabilities, helping you to understand its overall health. You can find these statements on the company’s website or through the FDIC’s BankFind Suite.
Dig deeper: How to make sure your bank is FDIC-insured — and what to watch for with nonbanks
6. You’re not minimizing taxes you pay on your savings interest
The interest you earn on HYSAs and other deposit accounts is considered taxable income, which means you must report it on your tax return. And while you can’t avoid taxes completely, a financial advisor or tax professional can help you develop a financial plan that minimizes the taxes you pay in the long run.
Strategies can include maximizing tax-advantaged accounts and retirement plans, including Roth IRAs and health savings accounts, as well as federal and state deductions and credits you might be eligible for, like those extended to homeowners, educators, parents and guardians.
Dig deeper: What happens to your bank account after you die?
How can I protect my money and the interest I earn with an HYSA?
Here are some tips to safeguard your money and ensure you’re earning the highest rate possible on an HYSA:
Don’t keep more than $250,000 in any one account category per financial institution to prevent the possibility of loss. If you exceed that amount, look for another account in which to store your money or confirm with the bank that it’s protected where it is, if accounts span ownership categories.
Read your account’s fine print to uncover any hidden fees and penalties that can get in the way of you earning the highest rates available — including maintenance fees, tiered interest rates and excessive monthly withdrawal penalties.
Periodically review your rate to make sure you're getting the best rate. By comparing high-yield savings accounts, you can earn competitive rates of 5% APY or more on your savings.
Compare digital banks and online accounts that can save on overhead costs that come with managing brick-and-mortar stores. These digital-only accounts partner with FDIC-insured banks to offer the highest APYs on deposit accounts that are also protected by the government for up to $250,000.
Dig deeper: High-yield accounts vs. traditional savings: Why it’s worth the switch
Alternatives to a high-yield savings account
HYSAs aren’t the only low-risk place to store your money and earn competitive yields. Here are other options to consider and grow your savings.
Certificates of deposit
A CD is a type of deposit account that offers a fixed guaranteed interest rate in exchange for investing your money for a set period of time — from three months to five years or longer. Like high-yield savings accounts, CDs are insured by the FDIC up to $250,000.
They tend to offer higher rates than an HYSA, but you typically can’t withdraw your money early without incurring a penalty. Consider building a CD ladder into your savings strategy to capture the best rates, while staggering your maturity dates for more financial flexibility.
Money market accounts
Like HYSAs, money market accounts are deposit accounts that pay similar interest rates that can fluctuate. But unlike HYSAs, MMAs may allow limited check-writing and debit card access, making them more flexible than HYSAs and CDs. Money market accounts are also FDIC-insured up to $250,000 per depositor, per insured bank, per ownership category.
Treasury bills
Treasury bills are securities with terms of one year or less that are issued and backed by the U.S. government as a way to borrow money from the public to fund government projects. While FDIC insurance doesn’t apply to T-bills, they’re considered low-risk investments because they’re backed by the “full faith and credit” of the government and provide a fixed return at maturity.
Dig deeper: When is it worth it to break a CD? A finance expert's take on early withdrawals and breaking even
Frequently asked questions: HYSAs and the safety of your money
Are high-yield savings accounts safe?
Yes. Look for high-yield savings accounts that are FDIC-insured up to the maximum limit of $250,000, providing a level of security for deposited funds. For accounts at credit unions, the National Credit Union Administration insures balances up to a specific amount per share owner. These agencies insure the safety of your deposit, even if the bank or account were to fail.
How does an HYSA compare to a traditional savings account?
High-yield savings accounts offer stronger earning potential when compared to traditional savings accounts that average 0.46% nationally, allowing your money to grow more substantially over time. HYSAs offer the convenience of online accessibility and minimal fees, giving you a secure and efficient way to manage your money. Learn more about why it's smart to switch to an HYSA.
Is my money safe with an online bank or digital account?
Yes. Online or digital banks — including fintechs — partner with FDIC-insured banks to offer deposit accounts that are protected by the government for up to $250,000. The FDIC insures the safety of your money, even if the bank were to fail or go out of business. Look for terms like "member FDIC," "FDIC insured" or "NCUA insured" when comparing your options.
Can the interest rate on a high-yield savings account decrease over time?
Yes. The advertised APY on HYSAs are variable and can change anytime at the discretion of your financial institution. So, even if you get an initially high rate on an HYSA, it could go down over time, especially if the Federal Reserve cuts benchmark interest rates. Learn more about the difference between variable and fixed interest rates.
Sources
National Rates and Rate Caps, FDIC. Accessed August 19, 2024.
Regulation D: Reserve Requirements of Depository Institutions, Federal Register. Accessed April 30, 2024.
Changes to the Ally Bank deposit agreement dated November 18, 2022 [PDF], Ally Bank. Accessed April 30, 2024.
About the writer
Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to empower consumers and business owners to make informed decisions and choose the right financial products for their needs.
