Introduction

High-yield savings accounts are known for their above-average interest rates, allowing you to earn extra money on top of the savings you contribute. This can help you reach your financial goals faster. However, even the safest investments have their drawbacks. In this article, we will explore the benefits and risks of high-yield savings accounts and other low-risk ways to grow your savings.

Can You Lose Money in a High-Yield Savings Account?

A high-yield savings account is generally a safe way to save your money. It isn’t tied to the stock market, so your balance is shielded from market volatility. Beyond that, virtually all banks and savings associations in the U.S. offer Federal Deposit Insurance Corp. (FDIC) insurance. With an FDIC-insured account, some or all of your money will be protected even if the financial institution fails.

4 Benefits of High-Yield Savings Accounts

1. Your Money Is FDIC-Insured

FDIC insurance provides coverage of up to $250,000 per depositor, per ownership category at each FDIC-insured bank where you have money. If an FDIC-insured bank fails, the account holder doesn’t have to do anything. Insurance will kick in automatically, and it typically takes up to two business days to receive the funds.

2. There’s No Exposure to Market Volatility

High-yield savings accounts are not tied to the stock market. As such, the risk of losing money is extremely low. Even if your financial institution fails, FDIC insurance can cover a large portion of your losses.

3. They Offer Higher-Than-Average APYs

The biggest draw of a high-yield savings account is that the annual percentage yield (APY) tends to be higher when compared with traditional savings accounts. At the time of this writing, some high-yield savings accounts have APYs as high as 4.85%.

4. They Provide Relatively Easy Access to Funds

With a high-yield savings account, accessing your money shouldn’t be too complicated. You can likely link it to your checking account and pull funds on an as-needed basis. Just be aware that your financial institution may limit how many free transfers you can make each month.

3 Risks of High-Yield Savings Accounts

1. Inflation Can Eat Away at Your Savings

Inflation chips away at your purchasing power. If the bulk of your wealth is in a high-yield savings account, inflation could gradually deteriorate its value. That’s why diversification is so important.

2. You Might Get Better Returns With Other Investments

The interest you might earn with a high-yield savings account is probably lower than what you could earn with other investments. Holding a variety of different investments can help mitigate risk and keep your portfolio balanced.

3. Some Financial Institutions Charge Fees

Some high-yield savings accounts come with fees, so it’s wise to compare financial institutions before opening an account. Some may charge a monthly service fee or require a minimum account balance to qualify for a certain APY.

Other Low-Risk Ways to Grow Your Savings

High-yield savings accounts aren’t the only option if you’re looking to save money without a lot of risk. Other choices include:

Bonds

Bonds are debt securities that are sold by corporations and government agencies. When you buy a bond, you’re loaning money to the organization that issued it. They’ll eventually repay you with interest. Bonds are considered low-risk investments.

Money Market Accounts

This type of account earns interest like a savings account. But like a checking account, most come with a debit card or checkbook as well. Money market accounts are accessible and can also be a good place to grow your savings.

Certificates of Deposit (CDs)

A CD earns interest but requires you to keep your money in the account for a certain amount of time. Withdrawing funds before the maturity date typically triggers a fee.

The Bottom Line

A high-yield savings account is considered a safe place to hold your savings. Interest rates are typically higher than traditional savings accounts, and most accounts are FDIC-insured. Just be sure to compare fees and ATM accessibility before opening a high-yield savings account.

A strong emergency fund is an important part of financial wellness. So is a healthy credit score. Free credit monitoring is a simple way to stay aware of what’s on your credit report, allowing you to head off any potential problems quickly.

Contact O1ne Mortgage for Your Mortgage Service Needs

At O1ne Mortgage, we are committed to helping you achieve your financial goals. Whether you’re looking to buy a new home, refinance your existing mortgage, or explore other financial options, our team of experts is here to assist you. Call us today at 213-732-3074 for any mortgage service needs. Let us help you make the best financial decisions for your future.