2 reasons I’m keeping my high-yield savings account despite rate drops

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• Since the start of 2020, interest rates have fallen dramatically, but high-yield savings accounts are still very useful.
• High-yield savings accounts pay well above the average interest rate and are insured by the US government.
• I’m keeping my emergency fund and other savings in a high-yield savings account indefinitely.
• See Business Insider’s picks for the best high-yield savings accounts »

High-yield savings accounts don’t pay the same high yields they did a year ago, but they’re still an ideal way to save for many people. I have used high-yield savings accounts since starting my first job after college, and a swing in interest rates isn’t going to scare me away.

Here’s a look at what happened with interest rates and why I’m still sticking with my high-yield savings accounts with no plans to make any changes anytime soon.

Interest rates are way down in 2020

High-yield savings accounts, credit cards, mortgages, and many other financial accounts use interest rates to pay or charge customers. These rates typically follow market interest rates, which follow a target interest rate set by the Federal Reserve bank.

When it became clear that COVID-19 would be a massive economic event in March, the Fed lowered rates by a full percentage point to a target of near zero.

Shortly after the Federal Reserve rates fell, so did rates for many financial products, including high-yield savings. My accounts at Ally, Capital One, Simple, and SoFi all had their rates slashed. But that doesn’t mean I’m going to withdraw or change my savings strategy.

High-yield savings accounts are still the best place to keep your cash

While I’m earning less with my high-yield savings than I used to, I still firmly believe they are the best place to keep your cash for a variety of financial goals. 

FDIC insurance keeps your money safe

Bank accounts in general are the safest place to keep your money. Thanks to FDIC insurance, or NCUA insurance at credit unions, your deposits are guaranteed by the US government to be safe up to $250,000 per depositor, per account, per financial institution. That means you could have up to $500,000 in insurance for a joint account.

During the 2008 financial crisis, one of my banks went out of business. I got a check from the FDIC for the account balance, including accrued interest. That experience has reinforced my confidence in the banking system as the best place to keep my money.

After all, if you have money at home and experience a fire or robbery, you could lose your money with no recourse. The safest place to keep money is in the bank.

High-yield savings accounts still pay the highest yields

The “high yield” part of high-yield savings accounts has changed, but they still typically offer rates well above what you would find with a traditional regional bank or one of the big, national, brick-and-mortar banks.

The FDIC reports that the average savings account rate is currently 0.05%. But many banks pay as little as 0.01% on savings accounts. At that rate, you would earn just $1 per year on a $10,000 balance. It’s almost like keeping your cash in a checking account.

The high-yield accounts I use today offer much more, and though they are not all that impressive compared to what I got a year ago, they are way better than 0.01%.

If you save $10,000 at 0.80%, you’ll earn $80 in a year. That’s not enough to make you rich and less than you would expect from many investments, but this type of account is generally the best you’ll find with no risk of losing your initial deposit. 

High-yield savings is ideal for emergency funds and more

I’m not keeping my retirement funds or HSA funds in cash savings at these lower rates, but there are plenty of uses where high-yield savings accounts are still ideal.

An emergency fund is the most obvious use for a high-yield savings account. These funds give you a cash safety net you may need to access in a hurry and probably don’t want to risk in the stock market. Down payment savings for a home or a new car are also best kept in high-yield savings in many situations.

If you want to keep cash somewhere safe for any important goal, a high-yield savings account could be the right fit. It combines safety with much higher interest rates than you’ll get from an average bank. That can add up to a big win for your personal finances.