High-yield savings account (HYSA) vs. investing

Quick insights

• HYSAs offer a certain interest rate on deposits and usually function like a standard savings account.
• Investing can provide greater returns than an HYSA but comes with a risk of losses, too.
• You can choose to put money toward a mix of high-yield savings and investment options, and your choices can vary over time.

With an HYSA, one benefit might seem self-explanatory: interest yields. Meanwhile, traditional investing options—stocks, bonds and mutual funds—remain popular for their potential returns.

Although Chase currently doesn’t offer a high-yield savings account, we’ll cover the reasons why you may want to open one of these accounts.

The differences between HYSAs and investing

Here’s how these two financial concepts compare in several important aspects:

Purpose

• HYSA: For saving money that you’d like to earn interest at a particular rate. An HYSA provides an insured account to store money that you’d like to grow for various goals or emergencies.
• Investing: For growing your money at various rates depending on the investment option and timeline you choose. Investing involves purchasing assets that can fluctuate (but hopefully appreciate) in value over time, but may lose value.

Access to money

• HYSA: Money is accessible through withdrawals or transfers, often with no penalties up to a monthly limit. You can typically complete transactions online or in person, so they’re also relatively quick in case of emergencies.
• Investing: Some investments can be sold quickly, while others may take longer to convert to cash or withdraw.

Returns

• HYSA: Offers interest rates that remain relatively consistent and can yield notable earnings on deposits.
• Investing: Has potential to generate high returns, particularly depending on the asset and timeline but fluctuate.

Time considerations

• HYSA: Helpful with goals that are months or years away, such as home purchase or wedding.
• Investing: More suitable for goals that are years or even decades away, such as retirement.

Security and insurance

• HYSA: Often considered a safe investment with high returns because HYSAs are typically insured at most financial institutions. Deposits are FDIC-insured up to the maximum amount allowed by law.
• Investing: Often riskier, as investments can lose value, including principal amount invested, and there is no guarantee of returns.

Complexity

• HYSA: Opening and managing is often straightforward, especially if you have experience doing so with other savings accounts.
• Investing: More complex by comparison. Seeing returns (and maximizing them) requires a range of knowledge and experience.

Taxes

• HYSA: Interest earned in an HYSA may be subject to federal tax withholding at the end of the tax year.
• Investing: Investment returns may be subject to tax withholding depending on a variety of factors.

Is a high-yield savings account better than investing?

Your budget and personal financial goals are going to be critical when choosing between high-yield savings and investing. An HYSA tends to earn interest at a consistent rate and remain accessible, which can help you follow specific financial plans. Investing may produce high returns or losses— returns aren’t guaranteed and could be inconsistent over time.

Your choice to put money toward savings, investing or both could vary as often as you’d like. There isn’t a set amount or mix of savings and investing that works best for everyone. For example, you could start by deciding on the amount of your monthly income you plan to put aside. Then, you can choose how and where to expend that money—an HYSA, investments or a mix—and your choice can vary each month.

What is the downside of a high-yield savings account?

One notable downside of HYSAs is that the returns, while consistent, may not keep pace with market growth. Over time, the interest earned on HYSAs may be lower compared to potential returns from investments like stocks or bonds. The rate might be subject to change with the bank’s policy or federal funds rate, as well.

Is it better to have your money in savings or stocks?

Consider your risk tolerance when deciding between these two particular options. Navigating the stock market is more complex than making deposits to an HYSA. With savings, money stays put and accessible. Sure, stock investments have potential to outperform HYSAs; however, the stock market has a reputation for unpredictable ups and downs.

Brokerage account vs. high-yield savings

Brokerage accounts allow you to manage a range of investment options based on your objectives. Professional, licensed advisors may also be offered to help you manage your account, typically for a fee. HYSAs are more commonly offered by banks and credit unions. The account works like a traditional bank account—you may already know how branches, customer service and online banking work.

In conclusion

HYSAs can help your money grow at a set rate while keeping it accessible through a certain number of withdraws and transfers each month. The potential interest earning might make an HYSA ideal for short-term savings or building emergency funds. Investing involves purchasing assets that have the potential to increase in value over time. High-yield investments could greatly outperform high-yield savings, but returns are not guaranteed.