Can you lose money in a savings account?
Quick insights
- Money in a savings account is generally protected from bank failure up to federal limits if the bank is insured by the Federal Deposit Insurance Corporation (FDIC).
- Monthly service fees or inactivity charges may reduce your balance over time.
- Inflation can reduce the purchasing power of your savings if prices rise faster than your interest rate.
Stashing your cash under the mattress might seem foolproof until the dog finds it, which is why most people prefer a bank. When you deposit money into a savings account, you might expect it to stay safe and grow over time. While these accounts are generally considered safe, hidden costs and inflation can still take a bite out of your balance.
How FDIC insurance protects against bank failure
One of the primary benefits of a savings account is that your money is generally not at risk from stock market crashes. Traditional savings accounts can be a safe place to store your cash.
Most major banks are insured by the FDIC. This insuranceOpens overlay helps protect your deposits up to $250,000 per depositor, per insured bank, for each account ownership category. You might consider reading more about what bank accounts are FDIC-insured to better understand your coverage.
While bank failures are rare, they can happen. If your financial institution goes under and your balance exceeds the $250,000 limit, your money may not be fully insured, which means you could potentially lose the excess amount.
If you use a savings product offered through a nonbank app that places funds at partner banks (often through sweep or “for benefit of” accounts), FDIC coverage may depend on how the program is structured and how customer balances are recorded. In some cases, issues at the platform or its intermediaries can delay access to funds or lead to disputes, even if the partner bank is FDIC-insured.
How fees may reduce your balance
Even if your bank is perfectly healthy, you might still see your balance drop if you aren't mindful of account costs. Some accounts may have fees or minimum balance requirements that can deplete your savings over time.
Here are a few ways costs might impact your account:
- Monthly service fees: Some banks charge a recurring fee just to keep the account open, though you may be able to avoid fees by maintaining a certain balance or linking a checking account.
- Inactivity fees: When you let your account go dormant, the bank could end up charging you a fee, which might slowly drain your funds.
- Withdrawal limits: Savings accounts are designed to discourage frequent transactional use, and exceeding monthly withdrawal limits can incur fees.
The impact of inflation
Perhaps the most common way savings lose value over time is through the effect of inflation. Inflation is the general increase in the prices of goods and services over time.
If you leave your money in an account earning a low interest rate, you might notice its purchasing power erode. For example, if your account earns 1% interest but inflation is running at 3%, your money is essentially losing value because it won't buy as much in the future as it does today. You aren't losing the actual dollars in your account, but you are losing purchasing power.
This also introduces the concept of opportunity cost. While your principal balance remains intact, keeping excess funds in a low-earning account means you might miss out on the higher returns you could potentially earn through investing or other financial products. Keep in mind that returns on investments are not guaranteed.
Losing money in a high yield savings account
A high-yield savings account typically offers a higher interest rate than a traditional savings account, which may help reduce the impact of inflation. Please note that Chase does not currently offer a high-yield savings account.
However, you can lose money in these products in the same ways you might with a traditional account. If the bank charges high fees or if your balance exceeds FDIC limits during a bank failure, your funds could be at risk.
Additionally, the annual percentage yield (APY) on these accounts is variable. This means the bank can raise or lower the rate at any time. If your rate drops significantly, you might once again find yourself losing purchasing power against inflation.
In summary
Protecting your savings can be part of any financial plan. While savings accounts are generally considered a safe place to store your cash, staying informed about fees and inflation may help you maximize your balance. By monitoring your account and understanding your interest rate, you might be able to better protect your funds and keep your financial goals on track.
