Roth IRA vs. high-yield savings account: Where should you save?

When it comes to growing your savings, should you go for long-term gains or easy access to cash? A Roth IRA offers tax-free withdrawals in retirement, making it a powerful tool for future wealth. But what if you need stability and quick access to funds? A high-yield savings account provides a safe place to park your money while earning interest.

So which one is right for you? Explore the differences between a Roth IRA vs. high-yield savings account so you can choose the best option for you. (Spoiler: The answer may be both.)

A basic savings account is one of the most accessible ways to store your money, and is available at most banks and credit unions. You deposit after-tax dollars and can withdraw anytime without penalties or fees. While traditional banks pay minimal interest, online banks often offer high-yield savings accounts with significantly better rates—sometimes rivaling the returns of U.S. Treasury bonds. If you're looking for a safe place to grow your savings while keeping your money easily accessible, a high-yield savings account could be a smart choice.

A Roth IRA is a flexible retirement account that allows you to contribute after-tax dollars and invest in a variety of assets for long-term growth. You can access your contributions anytime, and depending on how you invest—whether in mutual funds, stocks, bonds, or annuities—you have the potential for higher returns over time. Some banks even offer savings IRAs, which function like CDs or money market accounts for a more conservative approach. Whether you prefer stability or market growth, a Roth IRA can help you build a retirement savings plan that fits your goals.

The specific advantage of a Roth account is that your investment gains can be withdrawn tax-free after you reach age 59½ and have owned the account for at least five years. However, if you withdraw more than your contributed dollars before reaching those qualifications, you could be subject to income taxes and a 10% penalty.^*

Both a high-yield savings account and a Roth IRA help you save for the future, but they work in different ways. A Roth IRA has income limits, yearly contribution caps and less flexibility than a savings account. However, it offers significantly more growth potential since your money can be invested in stocks, bonds and other assets. If you're eligible, a Roth IRA can be a powerful long-term savings tool.

Here's what to know about how high-yield savings accounts differ from Roth IRAs.

Generally, anyone can open a savings account and deposit as much as they want—but Roth IRAs work differently. These tax-advantaged accounts have income limits, meaning only those below a certain threshold can contribute. Plus, there’s a cap on how much you can add each year. In 2025, the Roth IRA contribution limit is $7,000. However, if you're 50 or older, you can make an additional catch-up contribution of $1,000 for a total contribution limit of $8,000.

Here are the 2025 Roth IRA income limits to qualify to contribute:

• If you're a single filer with a modified adjusted gross income (MAGI) between $150,000 and $165,000, you can contribute a reduced amount to a Roth IRA. If you have a MAGI that exceeds $165,000, you can't contribute to a Roth IRA.
• If you're part of a couple filing jointly and your MAGI is between $236,000 and $246,000, you can contribute a reduced amount to a Roth IRA. If your MAGI is more than $246,000, then you can't contribute anything to a Roth IRA.
• If you're married and filing separately and have a MAGI over $10,000, you can't contribute to a Roth IRA.

One advantage of a high-yield savings account is that you can typically take out your money at any time without penalty. For a long time, high-balance savings accounts capped the number of withdrawals or transfers you could make each month at six, but the Federal Reserve waived that limitation during the pandemic, and many banks continue to allow withdrawals at any time.

Roth IRAs, however, have tax-advantaged incentives for you to keep your retirement savings in place until later in life. While you can take out money you've contributed at any time without tax consequences (because it's already been taxed), early withdrawals beyond that may be subject to ordinary income tax and a 10% penalty.

There are some exceptions to the IRA withdrawal rule, however. For example, if you've owned the Roth IRA for at least five years, you can take out up to $10,000 beyond your contributions to purchase your first home without having to pay taxes or a penalty. You can also sidestep the penalty, but not the taxes, when you withdraw funds for qualified disability expenses or qualified higher education expenses like books, fees, tuition and equipment.^*

Most financial institutions that offer savings accounts are federally insured, making them a safe place to keep your money. The Federal Deposit Insurance Corporation (FDIC) protects accounts at participating banks, and the National Credit Union Administration (NCUA) safeguards deposits at most credit unions. These bank and credit union insurance programs work similarly, offering $250,000 per person, per bank or credit union, for each account ownership type.

Suppose you have $100,000 in an insured savings account at a bank. Should your institution become insolvent, the FDIC would step in and replace those funds.

Roth IRAs that contain savings accounts and CDs are typically FDIC- or NCUA-insured (though it's important to check first). However, the same protection doesn't extend to the portion of your IRA containing insurance and investment products. Securities can fluctuate in value in any given year, as can certain insurance products pegged to the performance of the stock market. This makes stocks and mutual funds, for example, a more appropriate option for long-term investors who can ride out temporary bumps along the way.

The security that a savings account provides comes with a tradeoff of only modest returns. The interest rates that high-yield savings accounts pay out vary based on economic conditions but have generally been between 3%-5%.

Conversely, when you invest in stocks, bonds and mutual funds through a Roth IRA, you have the potential for much higher asset growth over periods of several years or more. Historically, the stock market has delivered an average return of roughly 10% a year, for example.

Suppose you invest $50,000 in a high-yield savings account. If that account offers an annual percentage yield (APY) of 4%, your balance would climb to $60,833 after five years. But if you were to invest that $50,000 into a Roth IRA that averages an annual return of 8%, you'd have $73,466 in that same timeframe. Plus, if you pull your money out after age 59½ and you've owned the account for five years, you wouldn't have to pay a tax on your $23,466 gain.

Learn more about how to invest and diversify with a Roth IRA

Choosing between a Roth IRA vs. high-yield savings account depends on your objectives.

When a high-yield savings account might be better than a Roth IRA:

• If you need quick access to your money, a savings account provides both security and flexibility—perfect for an emergency fund or a home down payment within the next five years. But why choose just one? Many people use both a savings account for short-term needs and a Roth IRA for long-term growth, giving them the best of both worlds.

When a Roth IRA might be better than a high-yield savings account:

• A Roth IRA is best used for what it was designed for—retirement savings. With tax-free withdrawals after five years and age 59½, it’s a great way to invest in funds and securities that can grow over time. Plus, Roth IRAs offer a tax-free advantage for your beneficiaries, making them a smart addition to your estate plan.