Is Now a Good Time to Open a High-Yield Savings Account?

Rates are low, but alternative options are slim pickings.

After the COVID-19 pandemic hit, the Federal Reserve dropped interest rates to 0% and pledged low interest rates through 2023. What that means for you is that most savings products are offering pretty slim returns right now, and they probably will for a while.

That being said, should you look for another place to park your cash, or is it still a good time to open a high-yield savings account? Here's what you need to know.

Interest rates are low all around

The best high-yield savings accounts are currently offering an APY of around 0.40% to 0.60%. While this is better than what you'd get from a regular savings account, it's well below the 3% and up that was being offered just a couple of years ago.

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

American Express® High Yield Savings APY 4.10% Rate info 4.10% annual percentage yield as of October 11, 2024 Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	APY 4.10% Rate info 4.10% annual percentage yield as of October 11, 2024	Min. to earn $0
Capital One 360 Performance Savings APY 4.10% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Sept. 27, 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.	APY 4.10% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Sept. 27, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
CIT Platinum Savings APY 4.70% APY for balances of $5,000 or more Rate info 4.70% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings On CIT's Secure Website. Member FDIC.	APY 4.70% APY for balances of $5,000 or more Rate info 4.70% APY for balances of $5,000 or more; otherwise, 0.25% APY	Min. to earn $100 to open account, $5,000 for max APY

Consider the fact that if you're earning a 0.50% APY on your savings, even if you have $20,000 in your account, you'll earn just over $100 in a year. It's not the worst return, but it's not even enough to outpace inflation in many cases.

However, other popular savings products aren't doing much better. A certificate of deposit (CD) typically offers better returns in exchange for locking up your money for a certain number of months or years. However, even the best CD rates right now are offering just barely more than savings accounts -- 0.60% to 0.90% -- and that's if you meet a minimum deposit requirement and agree not to withdraw your money for several years.

Money market accounts, which tend to offer better rates than savings accounts and still let you access your funds easily, are also down. The best money market accounts right now offer rates of 0.30% to 0.55% -- even less than a high-yield savings account.

High-yield savings accounts are still better than traditional savings accounts in many ways

Despite declining rates, high-yield savings accounts from online banks can still offer a far better deal than traditional savings accounts.

There are plenty of reasons to use an online bank. For one, their checking and savings accounts are typically free, and many don't have any minimum deposit requirements. The savings accounts at these online banks usually offer the 0.40% to 0.60% APY mentioned above, whereas savings accounts at traditional banks often only offer 0.01% to 0.03%.

What's more, many of the high-yield savings accounts offer extra perks like no ATM fees and free budgeting and savings features.

Should you invest your money instead?

If you're looking for a place to stash your savings and are wondering if your high-yield savings account is worth it, the answer is probably still yes -- unless it makes sense to invest that money.

The decision of whether to save or invest is a big one, and it shouldn't be made lightly. If you invest your savings, you risk losing it all. Plus, that money is no longer easy to access in case of an emergency. On the other hand, even the best savings accounts barely keep up with inflation. If you keep all your money in savings and never invest, you're losing out on the opportunity to earn bigger returns and build your wealth.

The first thing you should do is make sure you have enough money in savings for an emergency fund before you even consider investing. This should be at least six months' worth of basic living expenses. If you're not there yet, focus on saving for a while. If you already have a healthy emergency fund and are wondering where to put excess cash, then you might be ready to start looking for an online stock broker to invest your money.

If you think you could need your money within the next five years, you may want to consider keeping it in savings or at least in a low-risk and easy-to-access investment.

On the other hand, if the money you're saving is for a long-term goal, such as to buy a house 10 years down the road or retire in 20, it can be a good idea to invest that money wisely. Just keep in mind: As with anything, the greater the risk, the greater the reward.