3 situations where a high-yield savings account is a bad idea

I write about high-yield savings accounts almost every week, and I sing their praises everywhere I go. For most people, they're the lowest-hanging fruit in personal finance -- free money on cash you already have.

But a friend asked me last week which high-yield savings account they should open. And I realized they were focused on the wrong money move for their situation. They're early in their financial journey, carrying a chunk of credit card debt, with nothing invested yet. A savings account is not the right move for them right now.

That conversation got me thinking. A high-yield savings account is a great tool, but it's the wrong priority in a few specific spots. Here are three.

1. When you're carrying credit card debt

If you're carrying a balance on your credit cards, a savings account can wait -- kill the debt first. Chasing an extra $10 a month in savings interest makes no sense if you're bleeding $100+ a month on the debt side.

The average American carries $6,715 in credit card debt, according to Motley Fool Money research. Carry a balance like that and you're likely handing your card issuer well over $100 every month in interest.

I do think it's important to have a small emergency fund (like, $1,000 to $2,000) for quick access to cash. But all extra savings should be thrown at high-interest debt. I've coached a bunch of friends through payoff, and the winners all stopped saving and attacked the debt. Your best guaranteed return right now is a paid-off card, not a savings rate.

See the best balance transfer cards to park that balance at 0% intro APR and knock it out faster.

2. When the money is meant for long-term investing

If your money has 10 or more years to grow, a savings account is the wrong home for it.

Savings rates are decent right now, with top accounts paying 3.00% APY or more. But they don't come close to what the market has returned over long stretches.

Here's the math on $10,000 left alone, earning 3% per year in savings versus a 10% annual average return.

Same starting pile, wildly different endings. It's not even close. That gap is decades of growth you traded away for safety you didn't need.

Keeping an emergency fund is important. So having three to six months of expenses in a high-yield savings account is OK. But any surplus should be invested for the long haul. It'll compound into a way bigger amount over decades.

I've maxed out my Roth IRA every year for nearly a decade, and it's my favorite beginner account for investing (aside from a company 401k). See the best IRA accounts to put that long-haul money to work.

3. When you move money in and out often

A high-yield savings account is built for money that sits still, not money you touch every week.

Most banks that offer high-yield savings accounts have access restrictions, like 1- to 3-day ACH transfer times or limits on daily transfers. So it's no place for cash you need on demand.

It's better to keep the money for bills and everyday spending in a checking account.

For everyone else, a high-yield savings account wins

Outside those three situations, a high-yield savings account is still the easiest win in personal finance. If you're sitting on cash, there's no reason to earn 0.01% at a big bank while a better rate is a click away.

I'm a huge fan -- apart from the cases above, just about everyone should have one.

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