A high-yield savings account is a low-risk place to keep cash, but it can still lose money or purchasing power. **Last reviewed: **

At an FDIC-insured bank, deposits are generally protected up to $250,000 per depositor, per insured bank, for each ownership category. That protection includes accrued interest if the bank fails.

You can still lose money, earn less than expected or lose purchasing power through:

  • Deposits above the insurance limit
  • Account fees
  • Taxes on interest
  • Inflation
  • Fraud or unauthorized access
  • A fintech product that is not itself a bank
  • A falling interest rate, which reduces future earnings

When Is Money in a High-Yield Savings Account Protected?

Money in a high-yield savings account is generally protected from bank-failure losses when:

  1. The account is a deposit account.
  2. The bank is FDIC-insured.
  3. Your total deposits stay within the applicable insurance limit.

FDIC insurance covers traditional savings accounts, money market deposit accounts and certificates of deposit at FDIC-insured banks. The standard limit is $250,000 per depositor, per insured bank, per ownership category.

Situation What could happen?
$100,000 in one FDIC-insured bank The full balance is generally within the insurance limit
$300,000 in one single-owner account at one bank $250,000 is insured; $50,000 may be uninsured
$150,000 at Bank A and $150,000 at Bank B Each balance is generally within the single-account limit
$300,000 divided between separate ownership categories More may be insured if the accounts meet FDIC requirements

Opening several savings accounts at the same bank does not automatically create several $250,000 insurance limits. The FDIC combines accounts held in the same ownership category at that bank.

A federally insured credit union uses the National Credit Union Share Insurance Fund, which generally provides similar protection of up to $250,000 for eligible accounts.

Can a Bank Failure Make You Lose Money?

You generally should not lose insured deposits if an FDIC-insured bank fails. The FDIC covers the insured balance, including principal and accrued interest through the date the bank closes. It may arrange for another bank to take over the deposits or pay depositors directly.

The risk is higher for money above the insurance limit. Uninsured deposits become claims against the failed bank's estate. Recovery may be delayed and may not equal the full balance.

Can the High-Yield Savings Account Rate Fall?

Yes. Most high-yield savings accounts have variable interest rates. The bank can lower the APY after you open the account, subject to the account agreement and required disclosures. U.S. banking rules require variable-rate account disclosures to explain that the interest rate and APY may change.

A lower APY does not usually reduce the money already in the account. It reduces the interest you earn from that point forward.

For example, on a $10,000 balance:

  • At 5% APY, one year of interest would be approximately $500 before tax.
  • At 3% APY, one year of interest would be approximately $300 before tax.

The difference is $200 in lost potential interest. It does not reduce your $10,000 deposit.

Can Inflation Make You Lose Money?

Inflation can reduce the purchasing power of your savings even when the account balance grows.

If your high-yield savings account earns 4% while prices rise by 5%, the balance may increase in dollar terms while buying less than it did before. The account balance has not fallen. Its value in terms of what it can buy has.

High-yield savings accounts are generally suited to:

  • Emergency funds
  • Short-term savings goals
  • Cash you expect to need within the next few years
  • Money you do not want exposed to stock-market volatility

They are not usually designed for long-term growth after inflation and taxes.

Do Taxes and Fees Reduce Your Return?

Yes. Taxes reduce your after-tax return, and fees can reduce your balance or cancel out the interest you earn.

Interest that is received or credited to a savings account and available for withdrawal is generally taxable income for federal tax purposes. Banks commonly report this interest on Form 1099-INT.

Check the account disclosure for:

  • Monthly maintenance fees
  • Excess-withdrawal or transfer fees
  • Minimum-balance requirements
  • Fees for expedited transfers
  • Returned-payment or overdraft charges
  • Promotional APY conditions

A high APY may not be worth as much if the account charges fees that are difficult to avoid.

Are Fintech High-Yield Savings Accounts Protected?

An account offered through a financial app does not automatically have the same protection as an account held directly at a bank.

A nonbank fintech company is not itself FDIC-insured. Funds may qualify for pass-through FDIC insurance if the fintech deposits the money at an FDIC-insured bank, keeps the required records and meets other conditions. FDIC insurance does not protect against the fintech company's own bankruptcy or insolvency.

Before depositing money through an app, identify:

  1. The FDIC-insured bank holding the funds
  2. Whether your balance qualifies for pass-through coverage
  3. Whether deposits at multiple partner banks are counted correctly
  4. What happens if the app becomes unavailable
  5. Whether the product is a bank deposit or an investment product

A money market mutual fund, brokerage cash sweep, bond fund or cryptocurrency product is not the same as an FDIC-insured high-yield savings account. The FDIC does not insure stocks, bonds, mutual funds or crypto assets.

How to Reduce the Risk of Losing Money

Use this checklist before opening an account:

  • Verify the bank through the FDIC's BankFind tool.
  • Keep deposits within the applicable $250,000 insurance limit.
  • Include accrued interest when calculating your coverage.
  • Use separate insured banks or qualifying ownership categories for larger balances.
  • Read the APY, fee schedule and minimum-balance requirements.
  • Confirm whether the rate is variable or promotional.
  • Treat fintech deposit products separately from direct bank accounts.
  • Use strong passwords and multi-factor authentication.
  • Keep long-term investment money separate from emergency savings.

Bottom Line

A high-yield savings account at an FDIC-insured bank generally protects your insured principal from market losses and bank failure. It does not protect you from uninsured deposits, fees, taxes, fraud, inflation or the failure of a nonbank provider.

For most people, a suitable account has FDIC insurance, no monthly fee, clear withdrawal terms and a balance within the applicable insurance limit.