5 High-Yield Savings Account Mistakes That Could Cost You Money
A high-yield savings account can help your cash earn more, but these common mistakes could keep you from getting the most from your savings.
High-yield savings accounts (HYSAs) are one of the best places to keep your emergency funds and other short-term savings. HYSAs often offer significantly higher APYs than traditional savings accounts, putting your money to work to earn more money.
Putting your savings into a HYSA can help maximize what it earns in interest while still keeping it accessible if you need the cash. But simply opening a HYSA doesn't guarantee that you're getting the maximum return on your money.
Small habits and overlooked details may quietly reduce your earnings or keep your money from working as hard as it could. Here are five common HYSA mistakes to avoid.
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1. Sticking with a low-rate savings account
Many people still keep emergency savings in their primary savings account, where it earns a fraction of the interest it could earn in an online HYSA.
Since online banks don't face the overhead that brick-and-mortar banks do, they often pass those savings along to customers in the form of perks, like higher interest rates on HYSAs. HYSAs currently offer APYs up to about 4.2%, while traditional savings accounts offer an average APY of 0.38%, according to Experian. Interest on both types of accounts typically compounds monthly, meaning your earnings can generate additional interest over time.
Let’s say you deposit $10,000 into a HYSA earning 4% APY. If the APY remains unchanged and you don't make any withdrawals, you could earn about $400 in interest after one year.
By comparison, that same $10,000 in a traditional savings account earning 0.38% APY would earn about $38 after one year. That’s roughly $362 less than you could earn with a HYSA paying 4% APY.
2. Chasing every tiny APY increase
You want to choose a HYSA that offers a competitive rate, but it’s often not worth the hassle to switch banks every time another institution offers 0.05% or 0.10% more in interest. Interest rates are variable, so making the switch for a small increase in earnings may not pay off.
Instead, look for larger and more meaningful perks:
- Convenience: A bank that offers streamlined digital banking or other banking products you need might be an appealing and more convenient option.
- Customer service: If you’ve had a negative experience with your bank’s customer service, then you might want to consider changing to another bank with a reputation for excellent customer service.
- Account features: It might be worth it to switch to a bank that offers desirable features like no monthly fees, a low or no minimum balance and lots of freedom on withdrawals.
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3. Keeping all your savings in cash
HYSAs are ideal for your emergency fund and short-term goals, since the money remains easily accessible while earning interest. But HYSAs aren't the ideal solution for long-term savings goals.
If you have money earmarked for retirement goals several years away, it may be better invested or placed in a certificate of deposit (CD). According to Bankrate, CDs earn around 4% APY, with top rates reaching 4.35%.
Unlike HYSAs, where interest rates are variable, CDs feature a guaranteed rate, and their APY may be even higher than a HYSA. Depending on your timeline, a CD might be an ideal choice for your long-term investments.
Not sure where your savings should go? A financial planner can help you build a strategy for your money based on your short- and long-term goals, including how much to keep accessible in savings and how much to consider investing for the future.
Use the Bankrate tool below to connect with a financial professional who can help you map out your next steps:
4. Forgetting to review your account
Since HYSAs feature variable interest rates, your bank may raise or lower that rate over time. Letting your account sit without periodically reviewing it can be a mistake that might cause you to miss out on potential interest.
Check your account's interest rates a few times a year to ensure that it stays competitive. Make sure to check a few weeks after Federal Reserve meetings; if the Fed raises or lowers the benchmark interest rate, your bank may also follow suit. If your HYSA’s APY drops, consider shopping around to see if you can find an account with a more competitive rate.
5. Ignoring FDIC insurance limits
Just like with any other banking product, it's essential to verify that your HYSA is insured and your money is protected. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 of your money per ownership category, per insured bank.
For example, if you have a HYSA and a checking account at an FDIC-insured bank, then up to $250,000 of the value of those combined accounts is insured.
If you have larger balances exceeding $250,000, then consider dividing those balances up across multiple banks or multiple ownership categories, such as by putting your money in a single account, a joint account and a trust account.
Contact any bank you use or are considering using and verify that it’s FDIC-insured so that you know your money is protected. The bank can also help you determine which types of its accounts are insured, so you can strategically and confidently choose the best places for your money.
Make the most of your high-yield savings account
Opening a HYSA is a smart first step to putting your money to work, but getting the most from the account requires doing some extra work. Periodically review your APY rate, be sure you understand how the account works and make sure that your savings strategy still fits with your financial goals.
Performing a few check-ins each year, such as by verifying the HYSA’s current interest rate, can help ensure your cash continues earning a competitive return. It can also ensure that your money stays protected, and your financial strategy stays aligned with your short- and long-term goals and needs.
Savings rates can change frequently, so it pays to periodically compare your account with other options.
Use the Bankrate tool below to explore some of today’s top-earning savings accounts and see whether you could earn more on your cash:
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