The world of investing, 401(k), IRA, stocks and mutual funds isn’t as straightforward as investors would like it to be. For example, the name “high-yield savings account” can be misleading, as the rates of these accounts are not always high, and they tend to fluctuate pretty often.

The Pros and Cons of High-Yield Savings Accounts

High-yield savings accounts can have initial interest rates that make them quite attractive, and they offer returns that are higher than regular savings accounts. However, there are also terms specifying that the interest rate can be changed at any time, making it difficult to predict the interest rate going forward.

Despite this uncertainty, there are also a number of benefits. High-yield savings accounts offer much higher returns than typical savings or money market accounts. The funds are easy to access, they have low or no minimum account balance, and no fees.

Just How Often Do Rates Change?

Banks tend to adjust their interest rates when the economy changes. The Federal Reserve Open Market Committee meets every six months to decide if/how to adjust interest rates, which can occur every six months, at the end of a quarter or at the end of the month. However, a bank can also make an interest rate change as a marketing tactic. If an investor believes interest rates will be rising soon, positioning one’s savings in a high-yield savings account can set you up for taking advantage of a rate hike.

Investing in a High-Yield Savings Account vs. Money Market Account

When it comes to a 401(k), IRA or savings account options, many conservative investors select the money market account route. However, a high-yield savings account could offer some advantages for shorter-term investors.

While a money market account has limits on withdrawals, savings accounts generally have few restrictions. Some high-yield accounts may also offer higher interest rates than money market accounts, although depositing a higher opening balance in both cases will up your rate. In general, high-yield savings accounts are best for shorter-term investors, while money market accounts are better for the long haul.

Whether you’re looking to save money or invest in stocks and mutual funds for your 401(k) or IRA, there’s an ideal financial path for you. Do your homework and always choose investment vehicles that keep you in your comfort zone.