Disadvantages of HYSA?

Are they not popular? I thought they were what everyone used for savings.

They’re not as popular because they’re less common and fewer people know about them. A HYSA makes sense for an emergency fund.

A HYSA is great for money you need to park long-term (e.g., emergency fund or down payment for a house) that you don't want to invest because you can't risk the value going down when you need it. It doesn't make sense to be used as a regular savings account because there are legal limits of how often you can transfer money from it each month.

The interest rate on HYSA are great compared to regular savings accounts but nothing compared to investing your money (smartly) in the market, so it shouldn't be all your savings for retirement or such.

HYSA traditionally have limits on the amounts of transactions you can make per month, so you can’t use them like a regular checking account - but the limits are high, like being able to withdraw money 6x per month at the max. If you’re using it as an emergency fund I wouldn’t consider that a true disadvantage.

Other than that, no real disadvantage to a HYSA, just make sure it a true FDIC protected savings account. (The vast majority are, but you might run into some sketchy start ups trying to pretend an investment account is a HYSA).

Why are they not more popular? Most Americans don’t have enough savings to incur any meaningful interest. It’s sad but true.

The only downside is that it can take a couple of business days to transfer funds to your checking account (if it's at a separate bank) should you need access in a pinch. My solution is that I just keep a buffer in my checking account funds in case we have an unexpectedly spendy month.

I've always used one for my emergency fund. Even when it was only 1%.

I only recently opened one, and I guess the delay was out of laziness and comfort of the system I already had. It's definitely been worth it, though, as I've made over $100/mo in interest since I got it.

I think the disadvantage is that the rates are usually still below inflation. As another person mentioned, something like iBonds are calculated to be inflation + 0.25% (I believe) so you won’t “lose money” due to inflation. But HYSA is a great place to park your emergency fund while you set up other vehicles such as HYSA (can withdraw 1 year after contributing) and Roth (5 years after contribution).

The only disadvantage is that you’ll pay taxes on the interest earned, as opposed to a “normal” bank where your 02 cents a month in interest doesn’t generate enough to trigger a taxable event. There are no downsides. No reason an emergency fund should ever be in a bank like BoA or Chase or whatever other crap bank giving .0003% interest monthly.

There have been a few posts where people have experienced delays in wire transfers from their HYSA. For example, where they needed the money on a certain date for a down payment or payment at a closing. Moral of the story is, when you know you’re going to make a large purchase, move the money from your HYSA back to checking so it’s there.

I use it for my emergency fund. Why not? As long as you can still access the money quickly :)

I don’t see any disadvantages. I actually just deposited 6 months of expenses in a Capital One CD (5.00% APY). I still have a few months of expenses in a HYSA.

Fwiw I also use my savings account to pay my bills. I get six withdrawals a month, so I can auto pay my mortgage, hoa, and credit card with no problems. It lets me collect interest when money is direct deposited and waiting for the bills.

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From my experience they are offered with high deductible health plans, so that's a disadvantage.