Which option will grow your savings faster?

When you’re deciding where to deposit your savings, interest rates are a key factor to consider.

High-yield savings accounts (HYSAs) are a popular choice for many savers since they’re easy to find and have higher rates than most savings accounts. But an HYSA isn’t always the right place to stash your mid- to long-term savings.

While bonds are less popular — only around 7.5% of U.S. households invest in them — they can help your savings grow faster than HYSAs in certain market conditions. Plus, they come with guaranteed returns.

Here’s a closer look at bonds vs. high-yield savings accounts and which option may be a better fit for you.

A bond is essentially a loan you make to the government or another entity in return for a set rate of return. Bond terms can range from four to 30 years, depending on the type, and interest is usually paid to you every six months.

Don’t want to wait years or decades to access your money? You can sell your bond before it reaches maturity, and you may even increase your returns by doing so; if interest rates and inflation drop, your bond’s rate is likely to increase.

If you have a retirement account, some of your money may already be invested in bonds, but you can also invest in bonds in a few other ways:

• Treasury bonds: Issued by the federal government via Treasury Direct with denominations of $25 to $10,000.

• Municipal bonds: Available through state and local governments.

• Corporate bonds: Available through private businesses or brokers with built-in commission fees or “mark-ups.” Denominations usually start at $5,000.

Read more: Types of U.S. savings bonds and how they work

High-yield savings accounts are just like regular savings accounts, but they pay above-average interest rates. While the national average rate for savings accounts is currently 0.38%, you can find HYSAs with rates above 4%.

HYSAs are available through many banks and credit unions, and some have no monthly maintenance fees or minimum deposit requirements. However, online banks are usually the best places to look for HYSAs, since their low overhead allows them to pay you higher returns on your deposits.

High-yield savings accounts and bonds are both good tools for protecting your savings and earning some interest on your cash, since there’s almost no risk of losing your principal with either one. But the similarities stop there.

With HYSAs, you can deposit and withdraw your money whenever you like, without having to worry about penalties. With bonds, however, cashing out early can lead to losses (or gains) depending on how the bond market is performing. You can also lose money on corporate bonds if the company that issued the bond defaults.

When it comes to growing your wealth, neither HYSAs nor bonds will have a big impact, since they rarely yield returns over 2% to 5%. So, whether a bond or a HYSA is best for you ultimately depends on your other goals.

For short- to mid-term savings (up to four years), a high-yield savings account is the clear choice since you can easily access your money when needed without worrying about penalties or losses.

However, bonds are useful for some mid- to long-term savings goals. They offer guaranteed interest and have returned more than three times the average for bank deposits since the mid-1970s (3.1% versus 0.6%, respectively).

For investors, some experts recommend keeping two to four years’ worth of your living expenses in a mix of CDs, bonds, and other accounts that have low withdrawal fees. This strategy helps you avoid the temptation to sell stocks at a loss during financial emergencies.

Here are some other scenarios when bonds are worth considering over HYSAs:

As you age, it’s wise to move more of your investment portfolio into low-risk assets like bonds. That’s because you have a shorter investment horizon, or less time to recover your losses if there’s a market downturn.

Plus, withdrawing from bonds can supplement your income in retirement. One way to do this is by setting up a bond ladder or investing in bonds with staggered maturity dates.

How much money should you invest in bonds? At present, people over age 70 allocate less than 12% of their portfolios to bonds, on average. But much higher percentages are recommended for most age ranges:

• 40s: 0%-15%

• 50s: 15%-35%

• 60s: 35%-50%

• 70+: 40%-60%

A general rule of thumb when it comes to investing in bonds is that when interest rates rise, bond prices fall. And when interest rates fall, prices increase. In other words, the timing of your investment matters.

There’s some speculation that the Federal Reserve will cut interest rates before the end of 2025. However, Fed rate cuts are likely off the table until September at the earliest. So now isn’t the optimal time to buy bonds, but that could change in the coming months.