Are High-yield Savings Accounts Safe?
Are high-yield savings accounts safe? They’re probably the safest place you can place your money today. However, theft is not the only thing you should be protecting your money from.
- What are the risks of a high yield savings account?
- How to choose a high-yield savings account ?
- Try a MyConstant’s instant access account and get 4% APY on your savings
If your primary concern is keeping your money safe from theft and volatility, then high-yield savings accounts with traditional banks are some of the safest places you can keep your money. However, they won’t keep your money safe from everything.
Let’s take a deeper look at how high yield savings work, their drawbacks, and alternatives you may want to consider.
What are the risks of a high yield savings account?
The higher returns of high-yield savings are possible because banks (or other financial institutions that offer savings accounts) use money in your savings account to lend to borrowers.
Because your money is out there earning interest, it isn’t always sitting in the bank waiting for you to come back and withdraw it. Banks only hold a tiny percentage of money deposited in reserves; they loan the rest out.
Luckily, the Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 on all savings. This keeps risk quite low.
However, if everyone suddenly wanted to withdraw their money (which has sometimes happened during economic crises), there could be an issue.
And this isn’t the only disadvantage.
The costs of high-yield accounts
The point of using a high-yield savings account and not just a regular checking account is to get some interest on your unused money. Unfortunately, there are many reasons today why you may not get much interest.
Many savings accounts have a small monthly fee required to maintain the account. Considering most accounts now have an interest rate of less than 1%, you’d need to have a large amount of cash inside to be making any kind of profit.
For example, if you had $5,000 in an account with 1% interest, you’d only be making around $4 a month from your returns. But this is about the same as a standard monthly account fee!
Restrictions on withdrawals
Some accounts place restrictions on the number of withdrawals you can make or require you to leave your money in for a certain period. Generally, the accounts with the most restrictions on moving your money have the best returns
With these issues in mind, let’s compare some of the top high-yield savings accounts out there.
How to choose a high-yield savings account ?
For most people, the most important factor to consider is the interest rate. This is usually shown as APY (annual percentage rate) to compare different accounts easily.
Currently, these are the high-yield savings accounts in the US that offer the highest interest rates:
- Affirm: 1.30% APY
- SmartyPig by Sallie Mae: 1.20% APY
- Customers Bank: 1.10% APY
- Fitness Bank: 1.05% APY
Account fees and accessibility
You shouldn’t just be thinking about the interest rates when you open a high-yield savings account. Every account has slightly different terms.
Make sure to look out for:
- How long you have to leave your money in the account
- Are there any account fees
- How often and how frequently you can withdraw your money
- Minimum and maximum balances
Your priorities will ultimately come down to your personal situation.
Can you lose money in a high-yield savings account?
Even though the chances of bank failure are extremely low, this isn’t the only way you can lose money in a high-yield savings account. Maybe you won’t have to worry about someone breaking into your bank vault.
However, you will effectively lose money to inflation if the returns you make are lower than the current inflation rate of 2%.
Fortunately, there are a growing number of alternative platforms solving the problem of low-interest high-yield savings.
Try a MyConstant’s instant access account and get 4% APY on your savings
At MyConstant, we’ve developed an account that lets you earn on your money like a bank. Just minus the fees.
Our instant access account offers 4% APY with no fees, a minimum account balance of $10, and no withdrawal limits.
How is this possible? Like a bank, we also loan out your money to borrowers. All money in instant access is placed in a lending pool and given out to borrowers. However, we give more of the profits back to you.
Although we’re not covered by the FDIC, we have an alternative system. All our borrowers must put down 200% of their loan value as collateral — if they stop making their payments, we sell their crypto to pay you.
And since we use a liquidity pool, you can always withdraw your money when you need it.
We think you’ll like earning with us. Sign up for a free MyConstant account today.
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