3 Reasons You Shouldn't Open a High-Yield Savings Account, Even With Rates at 5.55%

Savings accounts can be a great choice when you want to combine flexibility with earning interest on your savings. With a savings account, you can withdraw funds freely, that is, without having to untie it from stocks or break a CD contract. And while they can be pretty boring, savings accounts have lately boasted some impressive APYs, with one account that we know of even paying out at 5.55%.

That said, savings accounts aren't always the best choice for your money. In fact, though they have few risks, sometimes you could lose money to opportunity costs. If you're contemplating a savings account, here are three drawbacks to consider.

1. You could get stronger returns in the stock market

Savings accounts aren't great choices when you're saving for a long-term goal, like retirement. In fact, they're pretty lousy. Often, the rates on savings accounts can barely keep pace with inflation. Even when they do pace (or even outpace) the inflationary rate, they're not going to generate the kinds of returns you'll find in other investments, like stocks.

Over the last 50 years, the stock market has averaged an annual return of about 10%. At that rate, you could become a millionaire in 36 years by investing $250 monthly. Even if you were to deposit a lump sum, say $10,000, you could still grow it to over $350,000 in 36 years if your average annual return was 10%.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of January 4, 2025. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of January 4, 2025. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

Even at today's great rates, savings accounts can't compete with the growth opportunities in the stock market. While savings accounts are safer and don't come with market risks, storing a large sum in one might not make financial sense, especially if you're years from retirement and have time to bounce back from market downturns.

2. Savings rates can change

Today's savings account may have good rates. But don't be fooled -- those rates won't stick around forever.

Savings accounts have variable APYs, which means your bank could change your savings rate at any time. The same savings account that earns 5.55% today could earn less than half that rate in a few years.

It might not even be long before rates on savings accounts start to drop. Currently, rates are mostly at a standstill, as banks wait to see what the Federal Reserve decides to do with the federal funds rate. While the fed funds rate doesn't necessarily set interest rates for savings accounts, the two typically move in tandem. If the central bank reduces rates later this year, as most experts and policymakers predict, a chain reaction of rate reductions across savings accounts will likely follow.

It's impossible to predict where savings rates will be in a few months. But if you have savings that aren't earmarked for an immediate purpose, it might be prudent to move it into another fixed rate investment -- like a CD.

3. Certificates of deposit could earn more interest overall

If you don't want to invest in stocks, but you're concerned rates might drop later this year, you could look into certificates of deposit (CDs). Unlike savings accounts, CDs have fixed interest rates, which can be instrumental in locking today's great rates for a longer period of time.

While many of the highest CD rates are currently on shorter terms, like three to 12 months, long-term CDs could also present you with a lucrative opportunity. Like other bank accounts, long-term CDs have benefited immensely from the Fed's interest rate hikes. These days, it's not rare to find 4.00% to 4.30% APYs on 5-year CDs.

With a 4.00% interest rate on a 5-year CD, you could earn roughly $4,333 in interest on a $20,000 deposit. Of course, you have to keep your money locked up in the CD for the full 60 months to earn that much interest, which is one reason to choose a savings account over a CD for money you know you'll need in the near term. But, again, if you're confident you can part ways with a portion of your savings, you might be better off opening a CD account, even if your savings account pays at 5.55%.

All things considered, savings accounts are a good place to store savings you'll need in the near term, especially for emergencies. But for longer savings goals, like retirement, you'll probably get a better return when you invest it in the stock market or in CDs. Examine the options for yourself, then use our calculators if you need help visualizing how your money could grow.