Big Banks Don’t Need Your Money
It’s way overtime to beat up your big bank! Huge firms like JP Morgan, Wells Fargo, and Bank of America may offer excellent convenience, safety, and service beyond what many small local banks can offer. Because of that, the behemoth institutions are flooded with cash and don’t feel competitive pressure to provide market interest rates on the accounts. Leaving money earning .01% is ba’al tashchis. Even when inflation is running in the low single digits, it still destroys buying power, and we need to fight that. Today, there are many better cash options for those who take the initiative to overcome inertia and find safe solutions.
But Call Anyway
The simplest thing you can do to try and increase the interest paid on your savings is to call the bank or walk into your branch and say you plan on leaving if they don’t offer you a lot more. Especially for those with larger sums, that call can bump rates up significantly. The relationship manager may counter a bit, but getting an additional 1–3% is possible even at larger institutions. While this isn’t huge relative to inflation, at least it mitigates the decay somewhat—after all, 2% interest is better than nothing.
More Money in the Clouds
Several other options are available for those looking to earn the highest possible interest rate on their cash savings while maintaining the total safety of the principal. For example, online-only banks like Ally, Capital One, AMEX, and Marcus have much lower overhead costs than traditional banks, so they are often glad to offer significantly higher interest rates on their savings accounts. Whereas JP Morgan is quoting .01%, some online banks are quoting 4-5%. (See the image below, which is the result of a quick search at bankrate.com.) That’s real money, and it may well be worth making the switch.
Online Banks Are Convenient and Safe
For those with constant access to computers, online savings accounts offer much of the convenience of traditional savings accounts and better rates. In fact, their technology is often slicker and smoother than dodgy old banks’. Funds can be easily transferred to and from online bank accounts, and most online banks offer mobile apps for easy access to account information and remote check deposits.
As long as they are FDIC insured, depositors’ funds up to $250,000 per account type per person are totally safe in these banks. Many who switch to online banks never look back. You can easily shop around online by rate and services and try it out. Note, that some small online banks offer teaser rates to entice you to open an account and then lower them to much less attractive levels. The names I mentioned above historically have not done so.
CDs for Added Yield Boost
Certificates of deposit, or CDs, are another option for earning a higher interest rate on cash savings. Traditional CDs offered by banks require the depositor to keep their funds in the account for a set period of time. Funds removed during this term will be penalized with a promised interest deduction. However, in exchange for this lock-up period, CDs offer higher rates than savings accounts, which provide 100% liquidity. Often, these rates are in the vicinity of what online banks are offering for 100% liquid savings accounts, but if you’re leaving money in a traditional bank, CDs might be worth it. Regular CDs are all equally safe within FDIC limits, so shop around. (Brokered CDs are another schmooze.)
Treasuries: An Unlimited Guaranteed Option
Relying only on FDIC insurance limits is not practical for those with more significant sums in cash. Where can large depositors get better rates on fully-backed cash? Treasury bills are the short-term versions of bonds, issued and fully guaranteed by the US government. They are one primary solution used by large corporations, pension funds, and even foreign governments to securely store vast sums of liquid cash. As of this writing, Treasury bill rates are over 4 percent, making them a great option for parking sums not covered by FDIC insurance. As a bonus, treasury interest isn’t taxable at the state level.
Buying and Managing Treasuries
These government bonds can be purchased directly from the US Treasury through its TreasuryDirect website or through brokerage firms like Fidelity, Schwab, and Vanguard. Make sure you focus on the short-term options if your goal is securing short-term cash. Treasury bonds can have expirations stretching out for years and decades. Some may be intimidated by the need to sift through individual treasury bills and roll them over as they expire. You can get some help from traders at brokerage firms at the price of a spread or commission.
Treasury Money Market Funds
Fortunately, there is a much easier option to get the security and interest rates of treasuries with the simplicity of a savings account. Money market funds are mutual funds that invest only in very short-term, very high-quality debt instruments. The US government does not back money market funds, but since they are invested in only the highest-quality and shortest-term loans, they maintain a very low level of risk. They are easily accessible via brokerage accounts at Fidelity, Vanguard, etc., and often can be accessed as easily as a savings account with today’s rates north of 4%.
Full Safety, Liquidity, and Great Yield
For me, the clincher is using a money market fund that only invests in treasuries! Buying into a treasury money market fund is an indirect way of depositing unlimited sums with the federal government, the strongest financial guarantee available. Basically, you pay a small fee to the fund manager to select the treasuries and offer constant liquidity and convenient access. Vanguard’s Treasury Money Market Fund (VUSXX), for example, is offering 4.63% (as of 11/13/2024). This is a no-brainer.
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