Are High-Yield Savings Accounts Safe?

A high-yield savings account (HYSA) is safe, as long as the bank or credit union behind it is federally insured. It’s protected the same way a regular savings account is: up to $250,000 if the institution fails. The risks are a balance over the limit, an app that isn’t actually a bank, and fees or falling rates that eat into what you earn.

How deposit insurance protects your savings

The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks. The National Credit Union Administration (NCUA) insures deposits at federally insured credit unions. Several state-chartered credit unions are insured by private insurers instead, so check before you deposit.

Both agencies cover $250,000 per depositor, per bank, for each account ownership category. And you don't have to apply or opt in: coverage starts with your deposit.

Read more >> NCUA vs. FDIC: What's the Difference?

How high-yield savings compares to traditional savings

At an insured bank or credit union, a high-yield savings account is just as safe as a regular savings account. The FDIC and NCUA insure them the same way. Neither one is invested in the stock market, so your balance doesn't drop when the market does. The rate can change, but the money you deposit stays yours.

Where they differ is what you earn. At the FDIC’s national average of 0.37%, $1,000 earns about $3.70 a year. Some high-yield accounts pay more than 4%, which works out to about $40 a year on the same $1,000. Rates are variable and differ from bank to bank, so compare the current APY before you choose.

Read more >> What Are the 6 Types of Bank Accounts?

High-yield savings account risks

Balances over the insurance limit

The $250,000 limit covers all of your deposits in the same ownership category at one bank, not each account. If your checking, regular savings, and high-yield savings accounts at one bank are all in your name alone, the FDIC covers up to $250,000 across all three.

Joint accounts are a separate ownership category. Each co-owner is insured up to $250,000 for their share. Money at a different bank gets its own coverage.

Apps that aren’t banks

Some high-yield accounts are opened through a financial app that isn't a bank. Instead, the app holds your money at a partner bank.

FDIC insurance covers the partner bank if it fails, but it doesn't cover the app company if that company fails, and getting your money back can take time. Before you deposit, find the partner bank's name in the app's terms or disclosures.

Rates that change

Savings account rates are variable, which means the bank can lower yours at any time after you open the account. Some accounts also advertise introductory rates that drop after a few months. The account disclosures show how long advertised rates last.

For a rate that can’t change, look at a certificate of deposit (CD), which locks your money at a fixed rate for a set term.

Fees and minimums

A monthly fee can cost more than the account earns. A $5 fee is $60 a year. To earn that much on a $1,000 balance, you’d need a rate above 6%.

Some accounts also pay the advertised rate only above a minimum balance. Before you open an account, find two lines in the fee schedule:

1. The monthly fee and how to avoid it.
2. The balance you need to earn the advertised rate.

If you’re starting with a small balance, look for an account with no monthly fee and no minimum.

Inflation

If your rate is lower than inflation, your money buys a little less each year, even as the balance grows. To compare, check your account’s APY against the current inflation rate to see where you stand.

For an emergency fund, a rate slightly below inflation can still be right for your savings. The money is insured, and you can get to it if needed.

Online-only bank limits

Many of the highest rates today come from online banks. They can be harder to use if you need to deposit cash or want to talk to someone in person. Transfers to a checking account at another bank can take a few business days.

Before you open one, check three things on the bank’s website:

1. How to deposit cash
2. How to reach customer support
3. How long outside transfers take

Keep enough in checking to cover your bills for a few days, so you’re not waiting on a transfer.

Read more >> Are High-Yield Savings Accounts Taxable?

How to make sure your HYSA is safe

Look up FDIC or NCUA coverage yourself

Don’t rely on the bank’s website or an app’s marketing. For banks, search the FDIC’s BankFind Suite. For credit unions, use the NCUA’s Credit Union Locator.

If you’re signing up through an app, look up the partner bank, not the app itself.

Keep each category under $250,000

Add up everything you hold in the same ownership category at that bank, including checking, savings, money market accounts, and CDs. If the total is over $250,000, you can open accounts at a second bank, or add a co-owner to a joint account.

Check the institution, not just the rate

BankFind lists each bank's official website. Make sure the site you're on matches it, because impostor sites sometimes use the names of real banks.

To see how a bank handles problems, search its name in the CFPB’s Consumer Complaint Database.

Read more >> How to Create a Savings Strategy

Bottom line

A high-yield savings account at an insured bank or credit union is as safe as regular savings, and the best pay far more than a traditional account.

When you apply for a loan or a card, though, lenders don't see what you've saved. They see how you've paid. A Kikoff Credit Account reports your on-time payments to Equifax, Experian, and TransUnion, with no credit check to sign up. Plans start at $5 a month.