How much is too much money for a high-yield savings account? (2024)

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MoneyWatch: Managing Your Money

How much is too much money for a high-yield savings account? (2)

It's no secret that high-yield savings accounts currently offer impressive returns. After all, just about everyone has heard how the Federal Reserve's aggressive rate hikes have driven deposit account interest rates upward.

But while a high-yield savings account can be a good financial tool, there are limits to the amount of money you should keep in your account. If you keep too much money in these accounts, you could miss out on the opportunity to increase your retirement savings, earn a larger return elsewhere or both. So, how much is too much money for a high-yield savings account?

Open a high-yield savings account now to earn more from your idle cash.

How much is too much money for a high-yield savings account?

Ultimately, the maximum amount of money you should keep in a high-yield savings account is unique to you. After all, you have unique savings goals, risk tolerance and investing capabilities to consider.

That said, there are a few factors you should weigh when you decide how much money is too much for your high-yield savings account, including:

FDIC and NCUA insurance limits

Most high-yield savings accounts come with FDIC or NCUA insurance on deposits up to $250,000 per account, per depositor. This insurance protects your money if the financial institution you bank with goes out of business or otherwise can't afford to let you withdraw your money.

So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account. After all, if you have money in the account that's over this limit, it's typically uninsured.

Take advantage of what a high-yield savings account can offer you now.

Your emergency fund

A high-yield savings account can be a great place to store your emergency savings. Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times. So, if you have $4,000 per month in expenses, you should have between $12,000 and $24,000 in liquid savings at all times.

Any savings you have in excess of your emergency savings might be better served in other accounts, however. For example, you could consider investing in a certificate of deposit (CD), stocks, bonds, gold or other assets to diversify your holdings.

Your overall financial plan

It's also important to consider your overall financial plan. For example, you may take a more aggressive growth approach with your personal financial plan. As such, you would probably focus more of your efforts on high-growth assets like stocks and real estate — leaving less money available for high-yield savings.

Of course, even as an investor with a healthy appetite for risk, you understand the need for an emergency fund. That said, having between three and six months' worth of expenses in a high-yield savings account doesn't fit into all plans. You may decide to only keep two months' worth of expenses in your high-yield savings account instead in order to focus on growing your money.

The key point here is that every financial plan is unique. If you're a risk-averse investor, you'll likely store more money in a high-yield savings account than an investor with a more hefty appetite for risk.

Why a high-yield savings account is a smart option

High yields are the central draw to high-yield savings accounts, but they're not the only reasons these accounts are a compelling place to store your money. Some other reasons to consider a high-yield savings account include:

  • Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
  • Accessibility: There are usually no waiting periods to access the money you have in a high-yield savings account. In fact, you should be able to withdraw your money up to six times per monthin most cases. However, you may be charged a penalty if you make withdrawals more often.

Learn more about your high-yield savings options today.

The bottom line

High-yield savings accounts are effective tools that can fit into most financial plans. These accounts offer safe and accessible homes for emergency savings — or any other savings you may need access to. However, if you can stand to wait a few days, months or even years to access your money, other savings vehicles may offer more advantageous ways to grow your nest egg.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he's not working, he enjoys time with his wife, two kids, two dogs and two ducks.

How much is too much money for a high-yield savings account? (2024)

FAQs

How much is too much money for a high-yield savings account? ›

Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”

How much money should you keep in a high-yield savings account? ›

For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.

How much is too much money in a savings account? ›

FDIC and NCUA insurance limits

This insurance protects your money if the financial institution you bank with goes out of business or otherwise can't afford to let you withdraw your money. So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account.

Can I lose money in a high-yield savings account? ›

You can't lose your money because, just like your regular checking and savings accounts, the money is insured by the Federal Deposit Insurance Corporation up to $250,000.

What is the bad side of a high-yield savings account? ›

What are the disadvantages of a high-yield savings account? Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it.

Is there a cap on high-yield savings accounts? ›

However, the Federal Reserve Board currently allows consumers to make unlimited withdrawals. Most HYSAs are also FDIC-insured up to $250,000 per account, so your money will always be safe no matter what happens with the economy.

Do millionaires use high-yield savings accounts? ›

Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.

Is 100k in savings too much? ›

Only about 12% of Americans have more than $100,000 in checking and savings. If you'd like to become one of them, you'll need a great financial strategy and plenty of discipline. It'll also be important to avoid key mistakes that can derail your progress.

Can you live off a high-yield savings account? ›

It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.

Is 10k too much in savings account? ›

First things first: There's nothing wrong with keeping $10,000 in a savings account. If you're working with a reputable bank, your money will have Federal Deposit Insurance Corporation (FDIC) insurance up to $250,000 per person per account ($500,000 for joint accounts).

What is the catch to a high-yield savings account? ›

What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.

What happens if you put 50000 in a high-yield savings account? ›

How much of a difference does this make? If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 5.32% APY,* your one-year interest soars to over $2,660.

Should I move all my money to a high-yield savings account? ›

Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.

Is it smart to keep money in a high-yield savings account? ›

Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.

Do you get taxed on a high-yield savings account? ›

All of your high-yield savings account interest is taxable. Your financial institution will send you a Form 1099-INT once you earn more than $10 in interest.

What is better, a CD or high-yield savings account? ›

If your goal is to lock in a high rate of interest on funds you don't need to access for a period of time, a CD might be your best option. However, a high-yield savings account may be the better choice if you want to earn solid interest on your savings while still keeping the money relatively accessible.

Should I keep all my savings in a high-yield savings account? ›

Rates fluctuate – Rates may move up and down, preventing you from predicting your return over time. Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation.

Is $20,000 a good amount of savings? ›

Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.

How much will 50000 make in a high-yield savings account? ›

5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.

How much will $1000 make in a high-yield savings account? ›

How Much Will $1,000 Make in a High-Yield Savings Account?
APYInterest Earned
0.45%$4.51
4.30%$43.86
5.15%$52.73
Nov 10, 2023

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