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How much should you keep in a high-yield savings account?

Kat Aoki
Updated
How much should you keep in an HYSA? (AndreyPopov via Getty Images)

In today’s environment of high interest rates, high-yield savings accounts are an attractive option if you’re looking for a safe, accessible spot to park your money while maximizing returns on your deposits. Yet while the best high-yield accounts offer a generous 5.00% APY or more on your money right now, you’ll want to strike a balance between saving and not missing out on other investment opportunities that can yield higher returns.

Here’s how much you should keep in a high-yield savings account, the benefits of HYSAs and when to consider alternative savings and investments.

🔍 How much are Americans saving in 2024?

Americans are stashing away 3.9% of their disposable income, according to recent Federal Reserve data. That’s about 50% less than in 2019 — before the pandemic — when the average savings rate was 7.4%. This lower number in 2024 suggests that Americans are either spending more of their disposable income, have less disposable income to save or are experiencing a combination of both factors.

Financial experts generally recommend that you keep an emergency fund that can cover three to six months' worth of necessary living expenses in a readily accessible account, such as a high-yield savings account. An emergency fund acts as a safety net, helping you ride out unexpected events like job loss, medical emergencies or home repairs — without resorting to high-interest debt.

However, the amount you should keep in a savings account depends on your unique financial situation. For instance, if you carry a large amount of credit card debt, it may be better to focus on paying it down before prioritizing savings. A solid budgeting strategy can help you track your income and spending, so you can get out of debt more quickly while still building an emergency fund.

Your job stability and income can also affect how much you should save. If you have a stable job or receive regular, predictable income from other sources — such as pensions or annuities — you may be comfortable with a smaller emergency fund. But if you're self-employed or have irregular income, you may want to save more than six months' worth of living expenses to provide a bigger cushion.

Also consider short-term financial goals. If you’re saving for a long-awaited vacation or a down payment on a holiday home, you may want to keep more than three to six months' worth of living expenses in your savings account or HYSA. This ensures that your funds are readily available when you need them.

Related reading: 4 tips for paying off your credit card debt — from a financial expert

While high-yield savings accounts are ideal for building an emergency fund and saving for short-term goals, oversaving in an HYSA has its drawbacks. The most significant of these is that you could be sacrificing higher returns elsewhere, which might affect your ability to build wealth sustainably and outpace inflation over time.

While HYSAs offer significantly higher interest rates than a traditional savings account, returns pale in comparison to the potential gains from long-term investments like stocks and bonds.

For example, if you invested $10,000 in Microsoft in March 2014, that investment would be worth more than $100,000 today. If you took a more conservative approach and invested $10,000 in an S&P 500 index fund 10 years ago, that money would be worth about $31,589 today. By comparison, if your money sat in an HYSA earning 5% during that same timeframe, it would only have grown to around $16,470.

As you can see, the potential returns from long-term investments can be significantly higher than the interest earned in an HYSA. Of course, the downside is that investing in the stock market comes with risks, and there’s always the possibility of losing money too, especially over the short term.

Putting your savings in different vehicles — such as index funds, stocks, exchange-traded funds (ETFs), certificates of deposit (CDs), money market accounts, bonds and other investments — can help diversify your investment risk over the long term, potentially increasing returns above and beyond what you can earn in an HYSA, while still maintaining a degree of liquidity.

Investment risk refers to the possibility of losing money due to market fluctuations, high inflation or other factors. Diversification helps manage this risk by spreading your savings across different asset classes and investment types. This way, if one investment underperforms or loses value, the other investments can help offset potential losses.

Even if you're earning the highest interest rate available on your HYSA, your funds may not keep pace with inflation over time. For example, if you’re earning a 5% APY on your deposits, but the inflation rate is 7%, your money is effectively losing 2% of its value each year. The more money you have parked in an HYSA, the greater this risk — especially in times of high inflation.

FDIC insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category. If your single-ownership HYSA account at any given institution exceeds this limit, any funds above $250,000 in the HYSA aren’t insured, exposing you to potential loss if the bank fails.

However, there may be situations when you need to store more than $250,000 in a bank account — for example, after you’ve sold your home or received an inheritance. In that case, you’ll want to take advantage of ways to extend FDIC insurance to protect your excess deposits.

Dig deeper: Can you lose money in a high-yield account? It’s unlikely — but here’s what to watch for

To determine the appropriate amount to keep in your HYSA, tally up your necessary monthly expenses and multiply that figure by the number of months you want your emergency fund to cover — typically three to six months. For example, if your fixed monthly expenses are $2,000, your emergency fund should be between $6,000 and $12,000.

On top of this figure, add in any short-term savings goals you’re aiming to achieve. These are expenses or purchases you anticipate making within the next few years, such as:

  • A down payment on a house

  • A new car purchase

  • Wedding expenses

  • A family vacation

Calculate how much you need to save for each of these short-term goals and add that amount to your emergency fund. The sum of your emergency fund and your short-term savings goals is the target amount you should keep in your HYSA.

Putting your funds into an HYSA can provide several advantages beyond competitive interest rates:

  • Easy access to your cash. HYSAs are an easily accessible place to store your emergency fund and short-term savings. Unlike a CD, you can withdraw your money without penalty up to your financial institution’s monthly limits, if any.

  • Seamless movement of your money. Once your HYSA is funded, you can move your money out any time with an electronic transfer through your online account or an app. Some hybrid HYSAs come with debit cards that allow you to pull money from an ATM.

  • FDIC insurance. Virtually all HYSAs are FDIC-insured up to $250,000 per depositor, per insured bank, per account ownership category. As long as you don’t exceed these limits, your money is insured against bank failure, however unlikely.

Dig deeper: High-yield savings account vs. CD: What to know while rates remain high

A high interest rate is important, but it shouldn't be the only factor you rely on when choosing the best account for your savings. Compare your options based on your savings budget and overall financial goals, weighing such details as:

  • Promotional rates. Today's HYSAs earn 5% APY and higher, making them a safe spot to grow your money, but some accounts advertise promotional or limited-time rates to entice you to sign up. Read the fine print to avoid the surprise of a rate drop when you aren't expecting it.

  • Minimum balance requirements. The best online banks and credit unions won't require minimums to earn the strongest APYs, though watch for traditional banks that charge maintenance and other fees if you can't maintain a specific balance each month.

  • Fees and penalties. No matter the advertising, it's wise to confirm there aren't any hidden fees that can eat into your earnings — like charges for paper statements, out-of-network ATMs or failing to meet deposit or withdrawal requirements.

  • Ease of accessing your money. Look for flexibility that includes ATMs and mobile apps that accept checks for deposit — or branch access, if you prefer in-person banking.

  • FDIC or National Credit Union Administration protections. Most HYSAs are federally insured for up to $250,000 per account, per person — which means your money is safe up to the limit.

Dig deeper: How to find and open a high-yield savings account

If you have long-term savings goals that span five to 10 years or more, developing a well-diversified investment strategy can be a smart choice.

This approach involves building a balanced portfolio that includes a mix of stocks, bonds, index funds, exchange-traded funds (ETFs), gold and other investments. You can also contribute to retirement accounts like a 401(k), traditional IRA or Roth IRA, which offer tax advantages and can help you build a substantial nest egg for your retirement years.

Additionally, investing in real estate — either through direct property ownership or real estate investment trusts (REITs) — can provide a hedge against inflation and potentially generate passive income streams. Real estate has historically appreciated in value over the long term, making it one of the best options for building wealth over the long run.

The key is to find the right balance between maintaining savings in an HYSA versus putting your money in other investments based on your risk tolerance. You’ll want to regularly review the amount you keep in an HYSA — as well as your account’s variable interest rate, which can fluctuate — adjusting your balance or moving your money to a different account entirely based on your personal financial situation, life changes and set goals.

Talk with a qualified and certified financial planner to develop a sound financial plan that aligns with your short- and long-term goals.

Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to empower consumers and business owners to make informed decisions and choose the right financial products for their needs.

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