High-yield savings accounts can seem very appealing, especially when interest rates are on the rise.
However, there are some risks to be aware of when chasing the highest yields. In some cases, it may be smarter to keep your savings in a stable, traditional account.
While high-yield savings accounts typically pay higher interest rates than standard savings accounts, the rates often fluctuate. The 4-6% APY you lock in today could drop significantly in a few months.
If the Federal Reserve cuts rates in response to a slowing economy, banks usually follow by reducing the yields on their savings and deposit accounts.
Some high-yield accounts also charge fees, like monthly maintenance fees, if you don't maintain a large minimum balance. These fees can cut into your returns and even cause you to lose money.
It's best to stick with no-fee high-yield accounts, but they typically offer slightly lower APYs.
Another risk is that promotional rates on high-yield accounts are often temporary. The special rate used to lure you in may only last for 3-6 months before dropping. If you have to move your money around frequently to chase the best rates, it creates extra hassle and uncertainty.
For some savers, a traditional savings account with a stable, lower rate of around 0.50% APY may be preferable. The returns will be lower but predictable, and the account is very unlikely to charge any fees. The money in the account also remains very liquid and accessible.
While high-yield savings accounts are an option if you want to earn higher interest, make sure you go in with realistic expectations. Interest rates and account terms can change at any time.
For the most stable option, a standard savings account could be the smarter choice despite the lower rates. Evaluate your priorities and how much risk you're comfortable with before chasing the highest yields.
