For those unfamiliar with me, I’m Paul Smith. I’ve been investing in property for over 40 years and have been fortunate enough to have earned millions of pounds through strategic investments in commercial property. While I don’t consider myself exceptionally bright, I’ve gained significant experience in understanding money, investments, and how financial systems work.
Today, I want to explore how high-interest savings accounts compare and whether they’re truly the best way to make your money work for you.
Spoiler: they’re not as advantageous as they may seem.
In recent years, with fluctuating interest rates, many people have turned to high-interest savings accounts as a secure way to grow their money. These accounts, often marketed by online banks, traditional brick and mortar banks, and credit unions, promise higher returns than regular savings accounts. But are high-interest savings accounts truly a lucrative option, or are they just a distraction from better investment opportunities, such as commercial property?
In this article I will break down the myths around high-interest savings accounts and examine their worth.
A high-yield savings account (HISA) is a type of savings account that offers a higher annual percentage yield (APY) compared to traditional savings accounts. These accounts are designed to help you grow your savings more quickly by providing a better interest rate. Unlike traditional savings accounts, which often offer minimal returns, high-yield savings accounts can provide a more attractive option for those looking to maximize their savings.
High-yield savings accounts are typically offered by online banks, credit unions, and some traditional brick-and-mortar banks. They are often marketed as a safe and stable way to grow your wealth, with the added benefit of liquidity. This means you can access your funds relatively easily, making them a popular choice for emergency funds and short-term savings goals.
However, it’s important to note that while high-yield savings accounts offer higher returns than traditional savings accounts, they still fall short when compared to other investment options like commercial property. The returns, although better, are often not enough to outpace inflation, which can erode the purchasing power of your savings over time.
High-interest savings accounts (HISA) are essentially savings accounts that offer a higher Annual Percentage Yield (APY) than regular accounts. They’re typically marketed as a safe and stable way to grow your wealth, all while offering a level of liquidity not found in riskier investments.
Here’s how they work: a high-yield savings account pays you an interest rate that’s higher than the national average, which might seem like a no-brainer to maximise your savings goals. But there’s a catch—a few, actually—that I’ll explore throughout this blog.
Let's take a closer look at their pros and cons to decide if they are indeed worth your time.
HISAs are generally regarded as safe investments. They are insured, meaning your money is protected up to a certain limit (typically £85,000 in the UK under the Financial Services Compensation Scheme). This makes them a good option for individuals looking to build an emergency fund with no risk of loss.
High-interest savings accounts are usually liquid, which means you can access your funds relatively quickly in case of emergencies or short-term needs. However, this liquidity comes with certain restrictions, which I’ll touch on shortly.
These accounts offer a better APY compared to regular savings accounts, meaning you earn a bit more for keeping your money in the bank. The appeal of earning a higher rate without locking your money away for years seems like a great deal, right?
Now, let’s switch to the cons because that’s where the real picture starts to reveal itself.
One significant downside to many high-interest savings accounts is the withdrawal limit. Many of these accounts restrict the number of withdrawals you can make each month.
This means you might find yourself unable to access your own money when you need it, which is particularly problematic if you are using the account for an emergency fund.
Most HISAs come with minimum balance requirements. If your account balance falls below this threshold, you could either earn a lower interest rate or, in some cases, incur monthly fees.
This can erode any gains you make, especially if you’re not maintaining a hefty sum in your account.
Perhaps the biggest issue with high-yield savings accounts is that they offer limited returns, especially when compared to other investment vehicles.
While it’s true that they offer a higher return than a traditional savings account, the rate is usually not high enough to outpace inflation.
For example, if you’re earning 1.5% APY on a high-yield savings account but inflation is running at 2%, your purchasing power is decreasing. In contrast, investing in commercial property or other higher-yielding options can provide a return that more significantly outpaces inflation, offering you real value growth.
By locking your money into a high-interest savings account, you’re missing out on other, potentially more lucrative, investment opportunities. For instance, investing in commercial property can yield returns far greater than the APY offered by even the most generous high-yield savings accounts.
Properties, especially in the commercial sector, offer not only potential for regular income through rental yields but also capital appreciation over the long term.
High-interest savings accounts are generally more suitable for short-term goals like setting aside a few months’ worth of expenses for emergencies. However, if you're looking at long-term wealth building, the return on these accounts pales in comparison to other investment options, such as commercial property.
When selecting a high-yield savings account, there are several factors to consider to ensure you make the best choice for your financial goals:
By carefully considering these factors, you can choose a high-yield savings account that aligns with your financial goals and offers the best combination of interest rates, fees, and accessibility.
While high-yield savings accounts are a great option for short-term savings goals, there are other savings options to consider that might better suit your needs:
Each of these savings options has its own set of advantages and disadvantages. By understanding your financial goals and risk tolerance, you can choose the option that best suits your needs. Whether you opt for the safety and liquidity of a high-yield savings account or the potential for higher returns with commercial property, the key is to make an informed decision that aligns with your financial objectives.
Rather than parking your money in a savings account and watching it grow at a snail’s pace, I advocate for looking into investments that have historically proven to generate substantial returns. One of the best alternatives is commercial real estate.
Unlike savings accounts, commercial properties can generate steady and consistent income through rental yields. Commercial properties often come with long-term leases, ensuring regular income, which can far exceed the returns on even the best high-interest savings accounts.
Over time, commercial properties typically increase in value, offering you capital appreciation in addition to rental income. This form of growth is something you simply won't get with savings accounts. While interest rates fluctuate and inflation rises, property remains a more reliable source of long-term financial growth.
Investing in commercial property also offers several tax advantages that you won’t get with a savings account. Depending on your location and financial structure, you may benefit from deductions on mortgage interest, depreciation, and operating expenses. These tax benefits can further increase your returns and significantly outperform the limited returns of a savings account.
One of the main psychological advantages of property investment is that it's a tangible asset. Unlike numbers in a bank account that can be wiped out in case of financial collapse (however unlikely), property is a physical asset that can be managed, improved, and sold.
Adding commercial property to your portfolio provides you with valuable diversification. While high-interest savings accounts might seem safe, they don’t add much in terms of diversification because they are still susceptible to economic conditions, especially when interest rates are low.
Commercial properties, on the other hand, perform differently based on market cycles, making them an excellent addition to a well-balanced portfolio.
To be fair, I’m not saying high-interest savings accounts are entirely useless. They serve their purpose for certain individuals. Here’s when they might make sense:
If your goal is to stash away a few months' worth of expenses for emergencies, a high-interest savings account might be suitable. Its liquidity, combined with safety, makes it an ideal place to park money that you might need in the short term. The low return might not be a concern if your focus is accessibility rather than growth.
For those saving for short-term goals—whether it’s a holiday, a new car, or a down payment on a house—a high-yield savings account might be a safer place than more volatile investment options. In such cases, the slight increase in interest may be enough to give you a little boost toward achieving your short-term objective.
When it comes to growing wealth, high-interest savings accounts fall short of their promise. Yes, they offer safety and liquidity, but the minimal returns, inflation risk, and minimum balance requirements make them far less attractive than they first appear. Online banks and credit unions may market these accounts as fantastic options, but the reality is that they are only truly beneficial for short-term goals or as a holding place for an emergency fund.
For anyone serious about building long-term wealth, commercial property investments offer far better returns. Property investing is not without its risks, but the potential rewards far outweigh those of any savings account. With commercial property, you get the opportunity for passive income, tax benefits, and capital appreciation—all while building an asset that can outperform inflation and other economic factors over time. According to real capital analytics, analyzing market trends within the commercial real estate sector can provide valuable insights, particularly through the use of Real Estate Investment Trusts (REITs).
So, are high-interest savings accounts worth it? In my view, they’re not—certainly not for serious investors looking to build wealth.
The next time you think about parking your money in one of these accounts, ask yourself if that’s really the best use of your funds. In my experience, the answer is no. Your money can work much harder for you elsewhere, especially in commercial property.
To sum up, high-yield savings accounts can be useful for certain people, but they are not a long-term wealth-building strategy. Instead, focusing on investments like commercial property will yield better results in both the short and long term. Choose wisely where you park your money because the opportunity cost of a bad decision can be far greater than any interest rates you're promised.
By investing smartly, you can achieve your financial goals much quicker than relying on a high-interest savings account to slowly accumulate wealth.
If you found this blog helpful and want to learn more about investing in property or alternative wealth-building strategies, be sure to follow me on social media.