Are High Yield Savings Accounts Safe? A Low-Risk Option During Market Volatility

High yield savings accounts (HYSAs) are a popular alternative to traditional savings accounts, and for good reason. In today’s climate of market volatility more people are looking for safer, more stable ways to grow their savings. HYSAs are safer financial accounts that offer a higher interest rate when compared to traditional savings, ultimately helping people accumulate savings more quickly.

A 2024 survey by Santander Bank found that less than one in five survey participants was taking advantage of higher-interest savings accounts like a HYSA. Further, those with more savings were more likely to use high-interest savings tools, accelerating how quickly they could grow their savings. People with over $25,000 in savings accounts were 4 times more likely to use a high yield savings option than those with less than $5,000 in their savings accounts.¹

The good news is that high yield savings accounts are accessible to almost everyone, and it often only takes a few minutes to set up an account. But before you apply for a HYSA, it’s important to understand the pros and cons and how it fits into your broader financial picture.


Key Highlights:

• High yield savings accounts offer more financial stability during market volatility and provide a higher interest rate when compared to traditional savings.
• The APY determined by the bank can fluctuate depending on broader market rate dynamics, changes in the federal funds rate, and predictions about future federal funds rate changes.
• The FDIC secures and supports member banks by insuring deposit accounts up to $250,000 per depositor, per ownership category, per institution. To expand this coverage, consider if your situation is amenable to opening more than one high yield savings account in different ownership categories. You could qualify for additional FDIC coverage by opening new accounts in different ownership categories that fit your needs – by adding a joint owner or beneficiary – based on the limits on the FDIC's website.
• Typically, banks that offer high yield savings accounts are online-only, meaning they don’t have the overhead of a physical bank. For this reason, banks may offer a HYSA with no maintenance fees.
  

What are high yield savings accounts?

High yield savings accounts are interest-bearing financial accounts that offer higher interest rates than traditional savings accounts. They’re frequently offered by online-only banks but may also be available from your local brick-and-mortar institution.

To be eligible to open a high yield savings account, you generally need to be over 18 years old (unless you’re opening a joint account with a parent or guardian over 18), have a valid government ID like a driver’s license or passport, and have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Keep in mind that it’s up to each bank to make the final decision on eligibility, so it’s important to check eligibility criteria with the bank you want to use before you apply.


How do high yield savings accounts work?

High yield savings accounts work by paying interest on the deposits in the account. The amount an account earns is reflected by its annual percentage yield (APY). The APY is determined by the bank setting an interest rate, can fluctuate depending on broader economic conditions, and in many cases rises and falls alongside the federal funds rate.

Let’s look at an example of how much you might earn using a HYSA vs. a traditional savings account. Say you open a high yield savings account and deposit your $10,000 emergency fund. The APY* of the account is listed as 4.25% with an interest rate of 4.17%. The goal is to figure out how much interest you’ll earn after one year if you don’t add or take money from the account.

The formula to calculate monthly compound interest (CI) is:

CI = (P*(1+(r/12))^12t) – P

Where P is the principal amount, r is the interest rate in decimal form, and t is time (e.g. 1, for one year).

Based on this simple math, you’ll see that after your first year using a high yield savings account with this APY and initial deposit amount, assuming the rate stays the same, you’d earn about $425 in interest.

As of April 10, 2025, the national average interest rate on savings deposits is only 0.41%, according to the Federal Deposit Insurance Corporation² (FDIC). If we use the same math and assumptions above with this average rate, your traditional savings account would only earn you about $41 in interest in the first year.