Where should your extra cash go? Should you focus on saving money in a high-yield savings account (HYSA) or investing in stocks? These are important questions to ask when you're trying to increase your financial stability and grow your net worth.

A high-yield savings account offers security and steady (though modest) growth — perfect for short-term goals and emergencies. Stocks, on the other hand, carry more risk but provide the potential for higher returns over time.

Striking the right balance between the two can make all the difference in reaching your financial goals. Here's what you should know when deciding how much money to put in an HYSA vs. the stock market.

High-yield savings accounts work very much like traditional savings accounts, except they offer higher-than-average interest rates. In fact, the best high-yield savings accounts pay upwards of 4% APY. HYSAs are available from many banks and credit unions, though they’re often found online.

Depositing money into a high-yield savings account gives you a way to earn competitive interest on your savings, while safely setting the money aside for future expenses. And since there are few, if any, restrictions on how and when you can access your money, HYSAs are particularly great for emergency funds and sinking funds — that is, money you’ll need for a specific expense in the near future, such as paying for a wedding or buying a car.

Additionally, unlike stocks, there's virtually no risk of losing money in an HYSA. The downside is that even the best HYSA rates aren’t high enough to grow your wealth significantly. So, if you’re saving for a big, long-term goal like retirement, putting all your money in an HYSA can hinder your progress.

Read more: Can a high-yield savings account replace your 401(k)​?

When you invest in stocks, you're buying a portion of ownership in a company, also known as a share. You can purchase stocks in several ways, including directly from the company (if available), through an online broker, or through certain types of retirement accounts.

As a stock owner, you'll make money if the value of the company you invest in grows or the stock pays dividends. And there's potential for big returns. Historically, stocks yield higher returns than any other type of investment — around 10% a year, on average.

However, there's no guarantee your stock will grow in value. In fact, there's a possibility that the value of your stocks will drop, especially in the short term, depending on market conditions or the company's performance. That’s why you shouldn’t keep any money you may need in the next five years in stock investments; investing over a longer horizon gives you enough time to recover from market dips.

For most people, both HYSAs and stocks can play a valuable role in their financial plans. As a general rule of thumb, aim to keep about 10% to 30% of your savings in an HYSA (for short-term needs and an emergency fund), and 70% to 90% of savings in stocks and other market investments (for long-term goals such as retirement, college, or general wealth building)

Of course, the exact breakdown of where you choose to keep your money depends on a few personal factors. Here's what to consider before you decide where your money should go.

If you don't have any liquid cash, meaning money you can access quickly and without any penalties, you should not, under any circumstances, purchase stocks. Full stop.

This includes emergency savings. If you don't have any liquid cash in a HYSA or other savings account, purchasing stocks is a bad idea. You might be tempted to sell your stock at a lower value than what you purchased it for just because you need the money to cover an unexpected bill.

So, at the very least, you should have a fully funded emergency savings account and money set aside for other short-term goals (such as a down payment, vacation, or holiday expenses) in an HYSA. Any extra savings meant for longer-term goals can be invested in stocks.

Read more: How much money should I have in an emergency savings account?

Consider the length of time you can afford to part with your money. Pinpointing your time horizon is essential when deciding how and where to invest.

If there's a chance you'll need to access your savings within the next few years, you have a short time horizon, and you should not purchase stocks. The money is better off in a HYSA, or even in a CD or a Treasury bill, where you'll have guaranteed returns, but you'll still have access when you need it.

For stock investing, a time horizon of 5-10 years or more is usually recommended. During that time, you can expect to see your stock values fluctuate daily. However, when you hold for a decade or more, you'll have the benefit of earning dividends and compound interest over the long term, and you can ride out the market fluctuations.

“Risk tolerance” refers to the degree of uncertainty or potential loss you’re comfortable with when investing your money. In other words, it’s how much volatility you can handle without panicking or making emotional decisions.

If you already have a steady income, solid emergency savings, and little debt, you should have a higher risk tolerance than someone who’s living paycheck to paycheck. In this case, you might consider investing in high-risk, high-reward assets like stocks in order to help increase your net worth.

Of course, it's still important to maintain a diverse portfolio of investments that includes other assets, such as bonds, real estate, and cash equivalents.

If you have a low risk tolerance and prioritize safety over growth, you may prefer to keep your money in a low-risk option like a HYSA, where you're guaranteed to maintain your full deposit amount, plus earn some interest. However, keep in mind that some risk is necessary for building wealth and achieving long-term goals.

Remember when you could find high-yield savings accounts (HYSAs) that earned upwards of 5% APY? It seems those days are behind us, at least for now.

Every time the Federal Reserve makes a rate cut — which it is likely to do at least once more before the end of the year — rates drop on HYSAs and other deposit accounts, making them less attractive tools for saving.

With that said, you can still earn 4% or more on a few HYSAs, which is far more than you'll earn on a regular savings or checking account. And compared to other banking and investment options, high-yield savings accounts remain one of the best places to safely store savings while earning a competitive interest rate. Here’s why.

For money you want to save for a few months or more — such as your emergency savings fund or money you're saving for an upcoming purchase — a high-yield savings account remains one of the best options.

Yes, rates have dropped on high-yield savings accounts, but they're certainly not "low." Looking back at recent years can help put things into perspective.

In 2018 and 2019, the best high-yield savings account offered just over 2% APY. By 2020, you were lucky to find any account with over 1% APY.

Even if rates drop further, HYSAs will continue to do what they do best: offer higher returns than most types of bank accounts.

For example, in November 2024, the national average rate on checking accounts was 0.08%, and on savings it was 0.43%. At the same time, you could find a handful of HYSAs that paid between 4% and 5%.

HYSAs are good accounts for most, but not all, savers. They pay competitive interest rates on deposits, but they also have limitations. Here's how you can decide if an HYSA is best for you:

As far as places to keep your savings, it's hard to beat an HYSA — even when rates are generally low. For one, your money is protected against losses if the financial institution fails (as long as your account is held with an FDIC-insured bank or NCUA-insured credit union). Plus, you'll earn a rate of return that beats most other bank accounts.

HYSAs are ideal for money you don't need for day-to-day spending, but may need for an emergency; experts recommend setting aside at least three to six months' worth of your living expenses in an emergency fund. An HYSA is also ideal for storing funds you're saving for a specific upcoming expense, such as a car repair or a down payment on a home.

Read more: How much money should I have in an emergency savings account?

High-yield savings accounts are designed to hold your savings. For money you want to use day to day, an HYSA is not the right choice, since there can be limits on your withdrawals and transfers. A checking account or possibly even a money market account would be a better choice.

Read more: The 10 best high-yield online checking accounts available today

For funds you want to invest long-term, you'll also want to look elsewhere. You can earn higher rates of return by investing in the stock market via your retirement account, especially if you have an employer match.

A few other drawbacks of HYSAs to consider:

Variable rates: The interest rates are variable, meaning they can drop in the future at the bank's discretion.

Access: Most HYSAs are available through online banks, which don't typically offer in-person banking or ATM cards.

If you want competitive interest rates, but an HYSA isn't right for you, there are other bank accounts worth considering. Both of these types of deposit accounts earn rates similar to HYSAs, but they have different benefits:

Money market account (MMA): Unlike high-yield savings accounts, money market accounts usually come with checks and debit cards. They're also easier to find through traditional banks.

Certificate of deposit (CD): Interest rates on HYSAs are variable, but you can lock in a competitive interest rate for a set period of time with a CD. The downside is that if you withdraw money from your CD before the maturity date, you’ll have to pay a penalty.

Read more: How to maximize your interest earnings following a Fed rate cut

After years of swelling market gains, it’s staggeringly clear: Markets can and do go down — fast.

Stocks have taken a beating since President Trump's "Liberation Day" tariffs detonated through markets across the globe. And tariffs aren’t the only factor investors and savers are navigating — much of the financial footing beneath us feels shakier than ever.

There’s the stomach-churning uncertainty millions of workers are grappling with over job losses. There's a haunting concern about Social Security and its future. The former head of the Social Security Administration has cautioned that the agency could be at risk of missing payments to seniors for the first time in its history, thanks to the massive staffing cuts planned by the Trump administration.

Gas prices are rising, and economists are openly warning of a recession.

The news is coming at us fast, and if you’re like me, you’re anxious.

I asked several financial advisors what they’re telling clients about how to manage their money in these unpredictable and unprecedented times.

Read more: Trump's tariffs: What they mean for the economy and your wallet

There’s a long road ahead, and that in itself can be distracting. Lisa A.K. Kirchenbauer, senior advisor and founder of Omega Wealth Management in Arlington, Va., told Yahoo Finance the most important question we can ask is: What are you most concerned about?

Knowing what the real concerns are for you and your family is critical, she said. “Then you can think about what action you can take to navigate through it — if anything.”

Sometimes the best strategy is to simply sit on your hands.

“Volatility is often just noise,” she said. “Staying invested and making strategic adjustments, rather than reacting emotionally, leads to stronger long-term results.”

“It’s important for retirees to anticipate that tariffs may be passed on as price increases in the internationally manufactured goods they buy,” Lazetta Rainey Braxton, a financial planner and founder of The Real Wealth Coterie, told Yahoo Finance. “This kind of inflation directly affects their household budgets, so savers need to have a disciplined approach to wealth management.”

One priority right now is to have a cash “cushion account,” she said. “This is a critical safeguard to help you navigate inflation, job transitions, sabbaticals, and unexpected opportunities. These reserves provide stability and flexibility in an ever-changing geopolitical and economic environment.”

Braxton monitors stock and bond markets — both domestically and internationally — through the lens of geopolitical and economic developments, yet her investment philosophy is simple. Stay centered on long-term, wealth-building through passive index investing and diversification — a mix of U.S. and international stock and bond funds, as well as real estate.

How many years until you plan to retire? That number is key in the moves you make now.

“The mistake a lot of people make is selling out of positions when the market is lower,” John Anderson, a certified financial planner at Equitable Advisors, based in Chicago, told Yahoo Finance. “If there are still several years until retirement, and you're an individual that might be doing the bulk of your retirement savings in a vehicle through your employer like a 401(k), continue to do those systematic investments while the market is down, because you are going to be buying shares more cheaply before the market rebounds.”

Anderson is spot on.

If you’re investing money automatically in your employer-sponsored retirement plan or an IRA, you're investing when the market is ripping and when it’s tanking, and that means the return on your investments evens out over the long haul.

If you’re like many retirement savers and invest in a target-date retirement fund, your account is automatically adjusting for market gyrations.

With a target-date retirement fund, you pick the year you’d like to retire and buy a mutual fund with that year in its name (like Target 2044). The fund manager then splits up your investment between stocks and bonds, typically both US and international, changing that balance to a more conservative blend as the target date approaches.

Are you retiring within three to five years? Listen up.

“If you're in a position where you are a little closer to retirement and you've built that nest egg up, then it'll be good to work with your advisor to see what strategies or products are out there that might protect you from downside loss,” Anderson said.

“Generally speaking you might want to shift to a portfolio with less risk, by diversifying out of equities and more into fixed income holdings.”

That’s solid advice and in line with what I heard from many of the pros I talked to. When you’re close to stepping away from a steady paycheck. or already retired, you should have at least five years’ worth of living expenses in a combination of high-yielding savings accounts, CDs, money market funds, and high-quality bonds.

Today’s high rates have made cash, Treasurys, and bonds attractive again, Kirchenbauer said. “With 4% to 5% yields now available on low-risk investments such Treasuries, CDs and money market accounts, investors have an opportunity to earn competitive returns while waiting for more clarity on inflation and rate cuts.”

Learn more about high-yield savings accounts, money market accounts, and CD accounts.

“This is the time to meet with your advisor to review your portfolio,” Kimberly R. Stewart, a certified financial planner with Ameriprise Financial in Orlando, told Yahoo Finance. “These are important factors in determining how your assets are invested and allocated. The goal is to ensure that your portfolio is properly allocated and diversified based on your investment objectives.”

Financial advisors generally suggest rebalancing (adjusting your mix of stocks and bonds) whenever your portfolio gets more than 7% to 10% away from your original asset allocation, which was built to match your time horizon, risk tolerance, and financial goals. To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So, a 60-year-old would have 50% in stocks and the rest in bonds and cash.

“The mistake a lot of individuals make,” Anderson said, “is that they aren't reviewing their portfolios on a consistent enough basis, and that might make one vulnerable when distributing funds from these accounts in down markets — which is going to potentially erode that nest egg faster.”

It’s time to put some of these good habits in place. As Kirchenbauer told me, this is just the beginning.

“There will be more ups and downs, more back and forth, more uncertainty before we get clarity,” she said. “As a skier, I think of it this way. This is not unlike when the light is ‘flat’ and you can’t really see in front of you, but a little farther out, you can see the contours of the slope. What skiers know is that they need to keep their knees bent and just ski through the flat light, staying focused farther down the hill.

“Right now, this may be all we can do — stay flexible and look ahead.”

My two cents along these same lines: When I ride down to a jump on my horse, I focus on the jump first, then lift my eyes and look beyond, keeping our pace steady and always moving forward.

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including "In Control at 50+: How to Succeed in the New World of Work" and "Never Too Old to Get Rich." Follow her on Bluesky.

The year ahead promises to be interesting for investors. In the U.S., a business-friendly administration, lower interest rates, and possible corporate tax cuts may support earnings growth. But, high valuations have many investors on edge. Let's explore what experts say about these competing dynamics and their impact on different areas of the stock market in 2025.

Learn more: How to start investing in 2025: A step-by-step guide

The S&P 500 (^GSPC) should produce modest returns in 2025, with volatility along the way. Marta Norton, chief investment strategist at retirement plan provider Empower, expects large caps will benefit from improving macroeconomic conditions and the ongoing adoption of artificial intelligence.

Norton cites valuation as an "important countervailing force." Valuation in this context refers to stock prices relative to earnings and other business fundamentals. When valuations are high, investors are paying more for earnings — usually with the expectation of strong growth. If the growth disappoints, volatility can result.

Learn more: See the stocks with the highest 52-week gains

Small- and mid-cap stocks may outperform the S&P 500 in 2025. The driving force will be the outsized benefits smaller companies should see from lower interest rates and possible corporate tax reductions.

According to David Rosenstrock, director at Wharton Wealth Planning, small and mid-caps are more likely to rely heavily on variable-rate debt, while larger companies favor fixed-rate facilities. Variable-rate borrowers benefit immediately from rate reductions because their obligations get repriced quickly. Existing fixed-rate debt does not adjust to lower interest rates until refinanced.

Tax cuts can favor small and mid-caps because most of their revenues are usually earned in the U.S. Rosenstrock explains, "Reducing the corporate tax rate may provide greater relief for these asset classes than for large caps, whose geographic revenue sources are more diversified."

Growth stocks may underperform in 2025. Crit Thomas, global market strategist at Touchstone Investments, cites high valuations and slower earnings growth as factors to watch. "These stocks may need to pause and allow earnings to catch up with valuations," Thomas said.

Additionally, growth index investors should be wary of concentration risk. As Thomas points out, "The top five stocks in the Russell 1000 Growth Index comprise 45% of the market cap." When only a handful of stocks drive the group's performance, volatility can result.

Value stocks are poised to outperform in 2025. Value stocks are characterized by slow and steady growth and low valuation ratios. Many pay dividends and generate strong and rising cash flows.

Value stocks have largely underperformed their growth-oriented counterparts for the past decade. The year 2022 was the exception. James Lebenthal, partner and chief equity strategist at wealth advisor Cerity Partners, expects value stocks will shine again in 2025. "Their earnings growth rates are set to accelerate while their share prices have languished for most of the last 10 years," Lebenthal said.

Learn more: Undervalued growth stocks