The 5 Worst Mistakes You Can Make With High-Yield Savings Accounts
KEY POINTS
- Only 34% of Americans have a high-yield savings account, while the rest miss out.
- Find an account you like and stick with it -- chasing the highest rate isn't worth the time.
- Not saving regularly is another common mistake, as is overfunding your savings and neglecting to invest.
Most banks and credit unions offer savings accounts, but rates vary quite a bit. High-yield savings accounts offer the best rates, which means you earn more interest on your money.
It's not hard to use high-yield savings accounts. They normally don't have any monthly service fees to worry about, and many of them have no minimum balance requirements, either. But you can still make costly mistakes, like the following, with this type of savings account.
1. Not using one
The biggest mistake with high-yield savings accounts is not having one, and it's extremely common. Only about one-third (34%) of Americans have a savings account earning at least 4.00%, according to a survey by Motley Fool Money from earlier this year.
Plenty of high-yield savings accounts currently earn rates near or above 4.00%. The national average for savings accounts is only 0.42%, according to the FDIC. On a $10,000 balance, that's the difference between earning $400 or more per year and earning less than $50.
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 December 27, 2024. Terms apply.
Min. to earn
$0
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
3.80%
Rate info
3.80% annual percentage yield as of December 27, 2024. 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. |
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
4.46%
Rate info
The annual percentage yield (APY) is accurate as of November 7, 2024 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. |
4.46%
Rate info
The annual percentage yield (APY) is accurate as of November 7, 2024 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. |
If you're looking for a high rate on your savings, consider the Western Alliance Bank High-Yield Savings Premier account. It earns an impressive 4.46% APY -- one of the highest rates I've found. Click here to learn more and open an account today.
2. Chasing the highest rate
It's good to make sure you're earning a competitive rate on your savings. You don't need to earn the absolute highest rate on the market, and trying to do so isn't the best use of your time.
Savings rates go up and down. The savings account with the highest APY now might not be on top in a month or two. If you chase the highest rate, you'll need to check the rates accounts are offering on a regular basis. And if you find an account with a higher rate, you'll need to apply for it and transfer your money.
It's a lot of work for little reward. There's a huge difference between earning 0.40% and 4.00% on your savings. But there's not much difference between earning 4.00% and 4.20%. On a $10,000 balance, that's $20 per year.
3. Inconsistent saving
A high-yield savings account is good motivation to build your savings. The more you save, the more interest you'll earn. To see exactly how much you could earn, check out our list of the top high-yield savings accounts.
If you're trying to build your savings, whether for an emergency fund or other financial goals, the best method is to make it a habit. Save a specific amount every month after you get your paycheck. To make it even easier, set up automatic transfers to your savings account.
Some people tell themselves they'll save what they can. Or, they wait until the end of the month and save what's left over. If you don't make saving a priority, you're more likely to spend every last dollar.
4. Overfunding it
I realize these mistakes might sound contradictory. Don't be inconsistent and undersave -- but also don't oversave.
While undersaving is more common, there are also those who go in the opposite direction. They put all their extra money in their savings. When you have a high-yield savings account, this may seem like a good idea, since you'll earn quite a bit of interest.
It's also important to invest, as this is the most effective way to build long-term wealth. The stock market, as represented by the S&P 500, has grown by about 10% per year for the past 50 years. That's much more than you'll get in any savings account. Saving is good, but don't neglect your investments, either.
5. Withdrawing from it regularly
All the money in your savings account should have a purpose. Your emergency fund is what you use for unexpected expenses, your travel savings is for vacation spending, and so on. It's fine to withdraw from your savings if you use the money for its intended purpose.
But it's not recommended to dip into your savings whenever or for impulse purchases. You won't have as much money available when you really need it. Some savings accounts also have monthly withdrawal limits. If you exceed them, your bank could charge you a fee or even close your account.
Savings accounts aren't designed for frequent withdrawals. If that's what you're looking for, checking accounts are a better fit for that, as they don't have withdrawal limits.
All these mistakes are easily avoidable. Now that you know about them, you can find a great high-yield savings account and get the most out of it.
Our Research Expert
Lyle Daly is a freelance writer who has been covering personal finance since 2016.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.