High-Yield Savings Accounts (HYSA)
Almost everyone keeps their money in a traditional savings or checking account, but those accounts pay very little interest. HYSAs offer a much higher interest rate and can help you reach your savings goals faster. However, there are a few things to keep in mind when opening a HYSA.
High-yield Savings accounts (HYSAs) are an excellent way to earn a higher interest rate than you’d typically get in a standard savings account without the need for much effort. Unlike investing in the stock market, where you’d have to understand how to invest or hire an investment advisor, with a HYSA, you can simply deposit your money and watch it grow over time thanks to compounding interest.
Unlike checking accounts, which are designed for spending, HYSAs are classified as savings accounts and are meant to be used for things like emergency funds and vacations. For this reason, they’re usually limited to six withdrawals per month by law as a protection against people using them to pay for daily expenses.
Many HYSAs also offer monthly maintenance fees, which can eat into any interest you’re earning on the balance. If you’re considering opening a HYSA, be sure to find one that doesn’t charge these fees. And be sure to check that the bank or credit union you’re considering has federal insurance through either the FDIC or the NCUA, which offers government-backed coverage of up to $250,000 per account holder if the institution fails.
Can I Lose Money in a High yield Savings Account?
In general, a high-yield savings account is considered a relatively safe investment option compared to riskier investments like stocks or cryptocurrencies. However, there are still factors to consider that might affect the value of your money in a high-yield savings account:
Inflation: If the interest rate on the high-yield savings account is lower than the inflation rate, the purchasing power of your money could decrease over time. While your account balance might not decrease, the real value of your money could erode.
Fees: Some high-yield savings accounts might have fees, such as maintenance or withdrawal fees. These fees can eat into your earnings and potentially cause you to lose money over time.
Interest Rate Fluctuations: Interest rates on savings accounts can change over time due to economic factors. If the interest rate on your high-yield savings account decreases, your earnings might not keep up with inflation, leading to a loss of purchasing power.
Opportunity Cost: While a high-yield savings account is a safe option, it typically offers lower returns compared to riskier investments like stocks or mutual funds. If you choose to keep all your money in a savings account, you might miss out on potential higher returns from other investment opportunities.
Currency Depreciation (for foreign accounts): If you’re using a high-yield savings account denominated in a foreign currency, fluctuations in exchange rates could impact the value of your money when converted back to your local currency.
