How much is too much money for a high-yield savings account? (2024)

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MoneyWatch: Managing Your Money
How much is too much money for a high-yield savings account? (2)

It's no secret that high-yield savings accounts currently offer impressive returns. After all, just about everyone has heard how the Federal Reserve's aggressive rate hikes have driven deposit account interest rates upward.

But while a high-yield savings account can be a good financial tool, there are limits to the amount of money you should keep in your account. If you keep too much money in these accounts, you could miss out on the opportunity to increase your retirement savings, earn a larger return elsewhere or both. So, how much is too much money for a high-yield savings account?

Open a high-yield savings account now to earn more from your idle cash.

How much is too much money for a high-yield savings account?

Ultimately, the maximum amount of money you should keep in a high-yield savings account is unique to you. After all, you have unique savings goals, risk tolerance and investing capabilities to consider.

That said, there are a few factors you should weigh when you decide how much money is too much for your high-yield savings account, including:

FDIC and NCUA insurance limits

Most high-yield savings accounts come with FDIC or NCUA insurance on deposits up to $250,000 per account, per depositor. This insurance protects your money if the financial institution you bank with goes out of business or otherwise can't afford to let you withdraw your money.

So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account. After all, if you have money in the account that's over this limit, it's typically uninsured.

Take advantage of what a high-yield savings account can offer you now.

Your emergency fund

A high-yield savings account can be a great place to store your emergency savings. Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times. So, if you have $4,000 per month in expenses, you should have between $12,000 and $24,000 in liquid savings at all times.

Any savings you have in excess of your emergency savings might be better served in other accounts, however. For example, you could consider investing in a certificate of deposit (CD), stocks, bonds, gold or other assets to diversify your holdings.

Your overall financial plan

It's also important to consider your overall financial plan. For example, you may take a more aggressive growth approach with your personal financial plan. As such, you would probably focus more of your efforts on high-growth assets like stocks and real estate — leaving less money available for high-yield savings.

Of course, even as an investor with a healthy appetite for risk, you understand the need for an emergency fund. That said, having between three and six months' worth of expenses in a high-yield savings account doesn't fit into all plans. You may decide to only keep two months' worth of expenses in your high-yield savings account instead in order to focus on growing your money.

The key point here is that every financial plan is unique. If you're a risk-averse investor, you'll likely store more money in a high-yield savings account than an investor with a more hefty appetite for risk.

Why a high-yield savings account is a smart option

High yields are the central draw to high-yield savings accounts, but they're not the only reasons these accounts are a compelling place to store your money. Some other reasons to consider a high-yield savings account include:

  • Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
  • Accessibility: There are usually no waiting periods to access the money you have in a high-yield savings account. In fact, you should be able to withdraw your money up to six times per monthin most cases. However, you may be charged a penalty if you make withdrawals more often.

Learn more about your high-yield savings options today.

The bottom line

High-yield savings accounts are effective tools that can fit into most financial plans. These accounts offer safe and accessible homes for emergency savings — or any other savings you may need access to. However, if you can stand to wait a few days, months or even years to access your money, other savings vehicles may offer more advantageous ways to grow your nest egg.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he's not working, he enjoys time with his wife, two kids, two dogs and two ducks.

How much is too much money for a high-yield savings account? (2024)

FAQs

How much is too much money for a high-yield savings account? ›

FDIC and NCUA insurance limits

How much is too much in a high-yield savings account? ›

Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”

Can I lose my money in a high-yield savings account? ›

Like regular savings accounts, high-yield savings accounts at banks protected by the Federal Deposit Insurance Corp. (FDIC) insure bank deposits up to $250,000 per depositor. That means you won't lose your money if the bank suddenly collapses.

Is my money safe in a high-yield savings account? ›

Are high-yield savings accounts safe? High-yield savings accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation or the National Credit Union Administration. So your money is as safe as it would be in a traditional savings account.

How much money can I make in a high-yield savings account? ›

Shopping around for a top APY means you can earn 10 to 12 times more than the national average rate, which is less than half a percent. $5,000 in one of today's best high-yield savings accounts could earn as much as $136 in just six months—compared to about $11 with an average rate. Able to save more than that?

What is the downside of a high-yield savings account? ›

Potential Drawbacks of High-Yield Savings Accounts

They are savings accounts, so they can prove limited in how much they earn over time. They may not be a substitute for riskier investment accounts or relied on solely for larger goals like retirement.

How much will $10,000 make in a high-yield savings account? ›

If you have $10,000 to invest, here's what your earnings would be at different interest rates: After one year with a regular account at 0.42%: $10,042.00. After one year with a high-yield account at 4.50%: $10,450.00. After one year with a high-yield account at 5.00%: $10,500.00.

What's the catch on a high-yield savings account? ›

What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.

Do millionaires use high-yield savings accounts? ›

Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.

What happens if you put 50000 in a high-yield savings account? ›

5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.

Can you live off of a high-yield savings account? ›

It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.

Should I put all my savings in a high-yield savings account? ›

As a result, they're not typically recommended for long-term wealth-building or retirement savings. To maximize your financial strategy, avoid keeping excessive cash in high-yield savings accounts. Instead, consider diversifying your investments for long-term growth and wealth preservation.

How to avoid paying taxes on a high-yield savings account? ›

Strategies to avoid paying taxes on your savings
  1. Leverage tax-advantaged accounts. Tax-advantaged accounts like the Roth IRA can provide an avenue for tax-free growth on qualified withdrawals. ...
  2. Optimize tax deductions. ...
  3. Focus on strategic timing of withdrawals. ...
  4. Consider diversifying with tax-efficient investments.
Jan 11, 2024

How much will $30,000 make in a high-yield savings account? ›

If you keep $30,000 in a high-yield savings account for one year at 4.50% APY, you can make $1,350 in interest. The longer you let your extra cash sit in your account, the more interest you'll earn.

Is 100k too much in savings? ›

For many people, financial stability means being confident in your ability to pay for all the expenses in your life — whether expected or not. There's no one-size-fits-all number in your bank or investment account that means you've achieved this stability, but $100,000 is a good amount to aim for.

Is there a limit to a high-yield savings account? ›

So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account. After all, if you have money in the account that's over this limit, it's typically uninsured.

What is considered high-yield for a savings account? ›

A high-yield savings account is the same as a standard savings account but pays a much higher yield on your money. The national average yield on savings accounts is 0.52 percent. However, you can find high-yield savings accounts that pay over 4 percent — nearly 20 times more than the average.

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