Can I Lose Money in a High-Yield Savings Account?

High-yield savings accounts (HYSAs) have gained popularity by offering significantly higher interest rates than traditional savings options. Many individuals considering these accounts often wonder about the safety of their funds. Understanding whether your money is truly secure in an HYSA involves examining how these accounts operate and the protections in place for depositors.

High-Yield Savings Account Fundamentals

High-yield savings accounts are deposit accounts offered by financial institutions that provide interest rates notably above the national average for standard savings accounts. Many HYSAs are offered by online-only banks, which have lower overhead costs than traditional institutions. This allows them to pass on savings to customers as elevated interest rates.

Competitive strategies also drive institutions to offer attractive rates to draw in new deposits. These accounts function similarly to regular savings accounts, allowing easy access to funds while your money earns interest. Funds can be accessed through online transfers, electronic payments, or ATM withdrawals, though some transaction limits may apply.

Deposit Protection Mechanisms

The safety of funds held in a high-yield savings account is secured through federal deposit insurance. The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects depositors in FDIC-insured banks. If an insured bank fails, the FDIC will cover the principal and any accrued interest up to a specific limit.

The standard insurance amount provided by the FDIC is $250,000 per depositor, per insured bank, for each account ownership category. If you have multiple accounts at the same FDIC-insured bank, the total balance across all accounts within the same ownership category (e.g., individual accounts) is aggregated for this limit. Different ownership categories, such as individual accounts, joint accounts, and certain retirement accounts, are separately insured. Consumers can verify if a bank is FDIC-insured by looking for the FDIC sign at bank branches or checking the FDIC’s BankFind tool online. For funds held within these limits at an FDIC-insured institution, the risk of losing your principal due to a bank failure is low.

Influences on Your Account’s Value

While the principal in an FDIC-insured high-yield savings account is protected against bank failure, other factors can influence the real value or net returns of your savings over time. Inflation can erode the purchasing power of your money. If the annual inflation rate is higher than the interest rate earned on your HYSA, your money may nominally grow, but its ability to buy goods and services decreases.

High-yield savings accounts feature variable interest rates. These rates can fluctuate based on broader economic conditions, such as changes in the federal funds rate. This means the interest you earn can increase or decrease over time, impacting your overall returns. While less common for HYSAs, some accounts might have minimal fees, such as inactivity fees, which could slightly reduce your net earnings. These influences affect the overall benefit of your savings, rather than indicating a loss of the original principal amount.