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Pros and cons of a high-yield savings account

minute read

    High-yield interest accounts typically offer higher earnings than traditional savings accounts. Choosing between the two may seem pretty straightforward — after all, who doesn’t want to earn more on their savings? While high-yield savings accounts may indeed have a lot to offer, higher interest rates may not always paint a complete picture of what to expect with these types of accounts. While Chase doesn’t currently offer these types of accounts, let’s look at some of the major pros and cons of a high-yield savings account so you can make a more informed decision about your savings options.

    The potential benefits of a high-yield savings account

    While the main selling point of a high-yield savings account might seem obvious, it could be worthwhile to explore the full range of potential benefits of a high-yield savings account. Doing so may help you understand how these unique savings accounts differ from other types of accounts.

    May offer higher earnings

    The potential for higher earnings is one of the key benefits of a high-yield savings account. Typically, high-yield savings accounts compound interest daily, meaning your interest earnings could accumulate more frequently.

    Flexible access

    High-yield savings accounts are generally more accessible than certificates of deposit (CDs), which often require a fixed term and may carry penalties for early withdrawals. High-yield savings accounts may offer potentially higher earnings much like CDs — but without having to keep the funds on deposit for a fixed term. This could make them an attractive option for individuals seeking a higher interest rate than a traditional savings account without the commitment of CDs.

    FDIC Insured

    Opening a high-yield savings account with a bank or credit union insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) provides a certain level of protection for your funds — up to the maximum amount allowed by law per type of deposit account, per insured institution.

    Drawbacks of a high-yield savings account

    While there are several high interest savings account benefits to weigh, there are a few potential drawbacks that could be worth thinking about too.

    Unsteady earnings

    High-yield savings accounts may have variable interest rates, which may impact earnings. While they aim to offer higher interest rates than traditional savings accounts, these rates may fluctuate over time due to changes in the financial market or the financial institution’s policies.

    Limited withdrawals

    Like traditional savings accounts, some financial institutions may limit the number of withdrawals and transfers you can make from a high-yield savings account each month. Exceeding this limit could possibly result in fees or restrictions on your account. This makes it important to understand the terms and conditions of any high-yield savings account you’re considering.

    No debit cards

    Most savings accounts usually do not offer debit cards. Some financial institutions provide savings accounts that come with an ATM card, allowing you to withdraw cash when needed.

    Choosing a high-yield savings account

    Weighing things like savings accounts pros and cons may be helpful as you evaluate your savings options. To help you make a more informed decision, let’s look at some potential steps to take:

    • Assessing your financial goals: Before jumping into any new savings vehicle, it might be worth pausing to assess your financial goals. Are you saving for a specific goal, like an emergency fund? Or are you looking to generally grow your money for the long term? Understanding your goals might help you determine if a high-yield savings account is right for you.
    • Comparing interest rates: One of the main benefits of a high-yield savings account is the potential for higher earnings. While exploring your options, it may be wise to compare the rates and annual percentage yields (APYs) of different financial institutions to potentially maximize your earnings potential.
    • Considering account features: High-yield savings accounts can come with various features, from online banking tools to mobile apps and more. Understanding which features are most important to you might highlight certain accounts align best with your personal preferences.
    • Understanding account requirements: The terms, conditions and requirements for any high-yield savings account can vary by type and financial institution. Reviewing the requirements of any account is a potentially worthwhile first step in assessing any new savings account.
    • Exploring other savings options: While high-yield savings accounts offer many benefits, there are other savings options to choose from. CD accounts, for example, tend to offer higher interest rates than traditional savings accounts as well, and may offer potentially higher earnings with savings strategies like CD ladders.

    In summary

    While the allure of higher earnings may be appealing, understanding the complete picture of high-yield savings accounts may be worthwhile. The pros of a high-yield savings account might boil down to better rates, more flexible access and potentially lower risk — the cons include more variable earnings and potential restrictions. Evaluating your financial goals and reviewing your other savings options could help you make a more informed decision about whether a high-yield savings account is right for you.

    While Chase does not currently offer a high-yield savings account, you can learn more about your savings options and other personal banking topics at our Education Center.

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