Is Your Savings Account Serving Your Financial Plan?
Part of any good financial plan is providing for some liquid savings for short-term and/or emergency needs of an individual or a family. As of this writing in May 2025, high-yield savings accounts are offering very attractive annual percentage yields (APY) in the wake of sustained higher interest rates as influenced by the Federal Reserve. I’d like to break down how to think about where your savings could be, how much to keep on the sidelines, and how this is insured by banking institutions. I continue to be surprised to find that clients I meet with are not earning anything substantial on their savings.
What is a high-yield savings account?
These accounts have only recently begun paying interest in the 3.5% to 4% APY range in the last several years. They are offered by online institutions as well as some brick-and-mortar institutions, although to a lesser extent. You want to make sure the account is FDIC insured so your deposits are protected from loss. The accounts are fairly liquid and can be accessed quickly when needed. If you have a need to park some money on the sidelines for a short-term need that is less than 12 months, this is a great option to consider. Yields on these accounts really started picking up in late 2022, and they can change in conjunction with the Federal Reserve rate cuts or hikes. Now is a good time to make sure your savings are earning you some money instead of an abysmal .01% like a traditional savings account.
What is FDIC insurance?
The Federal Deposit Insurance Corporation was created during the great depression to restore faith in America’s banking institutions. It insures deposits at banking institutions and guarantees them against loss with the full faith and credit backing of the United States Government. The FDIC holds the deposit insurance fund, which is funded by a combination of interest earned on government bonds and premiums paid by FDIC-insured banking institutions. This fund grows from these two sources and pays out to account holders in the event of a bank failure.
How do I know how much of my money is insured?
In speaking with clients, there is often confusion about exactly how much money is covered by FDIC insurance at their chosen institution when depositing in various savings vehicles. The answer can be complicated, but there is a simple rule of thumb: you are covered for $250,000 per person per account type that you hold with that institution. There are various account types, but they can be broken down into two categories:
- Retirement- IRAs
- Non-retirement- individual savings, joint savings, money market deposits, certificates of deposits (CDs), and trust accounts
As a result of this accounting, you can often be insured for more than you would think by the FDIC within the same institution.
Example: Mr. Godfrey Interest has the following accounts held at ABC bank: an individual savings account for $200,000, a CD for $50,000, a joint savings account with his wife for $300,000, a trust account for $250,000, and an IRA rollover in cash for $250,000. How much is FDIC insured?
Answer: all of it
Individual accounts: savings and CD for a total of $250,000
Joint savings: $150,000 (the wife is insured for the other $150,000)
Trust account: $250,000 (since this is a separate category from regular savings accounts)
IRA: $250,000 (these are tracked separately and have their own $250,000 per person limit)
How much to put in a high-yield savings account?
The answer to this will vary, but a general principle is to set aside 3-6 months of fixed and variable expenses for emergencies in a savings account. Certain factors would suggest saving more in this type of account, such as a family with only one working spouse, first entering retirement, owning a business, or handling multiple real estate properties. As always, the answer to this question is dependent on many factors, and there is no one-size-fits-all.
What options are available?
If you have an established banking relationship, you can ask for their high-yield savings account, or simply do an online search to find the best yields at institutions that may suit your needs. Check out the links below to find some current options and explore more resources:
https://www.wsj.com/buyside/personal-finance/banking/what-is-a-high-yield-savings-account
https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance
