Looking for a safe place to stash your cash? The pros and cons of keeping your money in a high-yield savings account (2024)

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What are the pros and cons of a high-yield savings account? ›

Pros and cons of a high-yield savings account

A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.

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.

Savings accounts are a great place to start because your deposits are typically guaranteed by deposit insurance up to $250,000. This insurance is provided by the Federal Deposit Insurance Corp. (FDIC) for bank accounts or National Credit Union Administration (NCUA) for credit union accounts.

Poor options for long-term goals: Although high-yield savings accounts have high yields compared with standard savings accounts, they don't pay enough interest to hit long-term savings goals or even keep up with inflation.

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.

How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)

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.

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.”

Use lots of hiding places. You could keep cash between pages in books, tape an envelope behind your headboard or put cash behind the false panel in your dishwasher.

Where is the best place to put your money besides a bank? ›

Money market account

A money market account can be a safe place to park extra cash and earn a higher yield than from a traditional savings account. Money market accounts are like savings accounts, but they often pay more interest and may offer a limited number of checks and debit card transactions per month.

There are four factors that may impact your ability to transfer out of your Stash Personal Brokerage portfolio: Invested funds: If you want to transfer money you've invested, you'll need to sell those investments first. Unsettled sales: Funds from an investment sale will take two business days to settle.

Storing your lump sum wisely

Upon receiving a lump sum, the immediate question is where to store it. A savings account is a common choice, offering a secure place to keep your money while earning some interest. There are several types of savings accounts designed to cater to different needs and goals.

Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank. For instance, there's no guarantee that funds kept in your home are safe from burglars or fires.

While high-yield savings accounts offer high APYs and zero risk, they're not the best way to grow your wealth long-term. That's because your APY can go up and down, and your yield may not outpace the inflation rate.

That could be because people see a savings account as just a place to park money, as opposed to growing it, so they're not shopping for the best rates, says Bill Van Sant, a CFP®, AIF® and senior VP and managing director at Girard® Investment Services.

Stampf recommends keeping six to 12 months' worth of expenses in a high-yield savings account for easy access to cash in case of an emergency and saving for larger expenses that are are coming in the short term, like buying a home.

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.