Loss of Yield: High-Interest Savings Accounts Over Time

With a nostalgic look to the past, many remember the times when high-yield savings accounts (HYSAs) offered a return of over 5% p.a. However, this era seems to be over, at least temporarily. Every time the Federal Reserve makes interest rate cuts – with at least one more expected by the end of the year – HYSA and other deposit account rates also fall, making them less attractive to savers seeking solid returns. Nevertheless, some accounts still offer interest rates of 4% or more, which is significantly more than typical savings or checking accounts. For those looking to invest their money for a few months or longer – be it an emergency fund or savings for a future purchase – an HYSA remains one of the best options. Although the interest rates are no longer at their peak, they are far from low. Looking back at recent years, it becomes clear that in 2018 and 2019, the best HYSA offered just over 2% p.a., and in 2020, one was lucky to find an account with over 1%. Even with falling rates, HYSAs will continue to do what they do best: offer higher returns than most other account types. For example, in November 2024, the average national interest rate on checking accounts was 0.08% and 0.43% on savings accounts. At the same time, some HYSAs were paying between 4% and 5%. For short- to medium-term investments, HYSAs are well-suited. Experts recommend setting aside at least three to six months of your living expenses in an emergency fund. For daily expenses, HYSAs are less suitable, as they often have restrictions on withdrawals and transfers. For long-term wealth building, however, stock markets through a retirement account are more attractive, especially with employer contributions. Some alternatives offer similar interest rates as HYSAs, but with different additional benefits.