A high-yield savings account is the best place for your emergency fund and any other money you might need within a few years. You always want some cash set aside that you can tap whenever you need it.
However, a savings account is not the best place to put money you’re saving for big, long-term goals. Keeping all your money in savings could cost you thousands of dollars in interest and taxes.
Here are three reasons why you might want to put your money elsewhere.
1. You’re saving the money for retirement
The best high-yield savings accounts pay annual percentage yields (APYs) around 4%. That’s not bad for a safe, guaranteed return. However, most of us need our retirement savings to grow much faster than that.
Our Picks for the Best High-Yield Savings Accounts of 2025
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American Express® High Yield Savings Member FDIC. APY 3.80%
Rate info
Member FDIC.
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3.80%
Rate info |
$0 |
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Capital One 360 Performance Savings Member FDIC. APY 3.70%
Rate info
Member FDIC.
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3.70%
Rate info |
$0 |
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Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.30%
Rate info Min. to earn $500 to open, $0.01 for max APY
Member FDIC.
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4.30%
Rate info |
$500 to open, $0.01 for max APY |
Over the past 68 years, the stock market (as measured by the S&P 500 Index) has gained an average of 10% per year — more than twice the interest rate of today’s best savings accounts.
Let’s say you’re saving $1,000 a month, starting from zero. Here’s how much your savings would grow if you 1) put that money in a savings account yielding 4% or 2) invested it in stocks and earned 7% per year (less than the historical average).
|
Years |
Savings Account Balance (4% APY) |
Stock Portfolio Value (7% Annual Return) |
|---|---|---|
|
5 |
$66,277 |
$71,681 |
|
10 |
$148,025 |
$173,528 |
|
20 |
$368,160 |
$508,995 |
|
30 |
$697,808 |
$1,217,950 |
Data source: Author’s calculations.
Not only can you earn more money by investing in stocks, but there are special retirement investing accounts that offer huge tax breaks. For example, the money you invest through a traditional 401(k) or IRA is not subject to income tax for the year. That could save you thousands of dollars up front. On top of that, the investments in the account won’t be hit with capital gains taxes or dividend taxes.
For the money you’re saving for retirement, start with a 401(k) if you have access to one, and be sure to earn the full employer match (if one is offered). Your next best option is an IRA. Just make sure you understand what you’re investing in. If you’re unsure where to start, consider a low-fee stock market index fund. You could also opt for a target date fund that chooses investments based on your investing timeline and when you expect to retire.
2. You’re saving the money for college tuition
If you’re saving money to pay for someone’s college tuition years down the road, then you’ll probably want more growth than a savings account can offer. And just like your retirement savings, college savings can go into a special type of account that offers higher potential returns and big tax breaks.
A Roth IRA is a retirement savings account, much like a traditional IRA. However, you can use a Roth IRA for college savings, too. You can’t deduct your contributions from your taxable income for the year. However, when the funds are later withdrawn for qualifying education expenses, they’re tax free. You can open a Roth IRA through any of the best stock brokers.
Another great option is a 529 plan. These are run by the state, and every state’s plan is a little different. These accounts are only for future education expenses; they can’t double as retirement savings accounts. However, they offer the same tax benefits as a Roth IRA.
Both Roth IRAs and 529 plans have some rules and restrictions, so be sure to read up on them before opening an account.
3. You’re behind on credit card bills
There’s debate on whether it’s best to save up an emergency fund or pay off credit card debt first. If you don’t have enough money in savings to cover a big, unexpected bill, then you may have to use a credit card — and wind up even deeper in debt.
However, if you have thousands of dollars in credit card debt and can barely make your minimum payments, then you’ll be swimming upstream until that debt is paid off. Your credit card’s APR is way higher than the interest rate on any savings account, so you won’t get ahead by putting money in savings.
And if you can’t even make the minimum payment, you could get hit with fees and an even higher APR (known as a “penalty APR”). It’s a vicious cycle that’s difficult to break out of unless you focus all your efforts on debt repayment.
Savings accounts are essential
There’s pretty much no reason not to have a high-yield savings account. It keeps your money safe, pays a little interest, and allows you to deposit or withdraw money whenever you want. That makes it perfect for your short-term savings.
Once you have enough money in savings to cover three to six months’ worth of expenses, though, you might want to start putting your cash elsewhere.
