Are high-yield savings accounts worth it for small balances?

Earning the best rate possible on your savings is crucial — cash sitting in a standard savings account loses value over time due to inflation, but a competitive rate can preserve your purchasing power and help your balance grow faster.

Even if your savings account balance is small, a high-yield savings account (HYSA) can still make a meaningful difference. Higher interest rates help your money grow faster than it would in a traditional account, and the power of compound interest means the sooner you start, the bigger the impact over time.

Let’s dig deeper into why it’s worth opening a high-yield savings account, even if you don’t have much saved yet.

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Why HYSAs are worth it — even for small balances

You may think you need a substantial balance to open an HYSA, but that couldn’t be further from the truth. These accounts often have no minimum balances or monthly fees, making them suitable for any account balance. Whether you have $10 or $10,000, an HYSA is an excellent place to stash your cash.

For example, suppose you have $100 in savings. With a standard savings account that earns the national average rate, your balance would be $100.40 after one year (assuming you didn’t make any additional contributions) — including just $0.40 in interest earnings.

Now, let’s say you put that money in a high-yield savings account that earns 4% APY instead. After one year, you’d have a balance of $104.07, including $4.07 in interest. Of course, this still isn’t much. But the more often you contribute to your account, and the larger your balance grows due to compounding interest, the more impactful that higher interest rate will be.

Here’s another example: Say you deposit $100 per month into a 4% HYSA and continue to do so for the next five years. In this case, your balance would grow to $6,752.00. That’s $6,000 in contributions from you, and another $652.00 in total interest earned.

As these examples show, you earn significantly more interest by keeping your money in an HYSA. Even though you still earn relatively little interest with a small balance, you still outpace the negative impact of inflation (which is currently 2.92%). And if you eventually contribute more, you’ll be able to take advantage of even more powerful compounding as your account balance grows.

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HYSA for small balances FAQs

Is there any downside to a high-yield savings account?

High-yield savings accounts have few downsides, but there are certain drawbacks to keep in mind. For example, HYSAs are typically offered by online banks, so you may have limited or no branch access and fewer options for depositing cash.

Additionally, you’ll likely earn higher returns by putting your money elsewhere, such as stocks and other market investments. However, investing is riskier than keeping your money in a savings account, which makes HYSAs a great place for short-term savings.

Do high-yield savings accounts have a minimum balance?

Some high-yield savings accounts may have a minimum balance to avoid a monthly fee or earn the highest interest rate. However, many HYSAs have no minimum balance or monthly fees, making them ideal for savers of all levels.

Why doesn't everyone put their money in a high-yield savings account?

Many reasons may prevent people from keeping their money in a high-yield savings account. Some may not be aware of the much higher rates HYSAs offer. Others might prefer having all their accounts in one place, even if that place is a traditional bank that doesn’t have HYSAs.

As mentioned, these accounts can have downsides, but they are usually minor concerns. They’re often worth considering if you don’t mind forgoing conveniences like physical branch access in favor of a higher yield.