Edit: In the very least it will educate many uninformed folks like myself they are getting shafted at their current banks. Double edit: Thank you for all the helpful links and information!
I'm currently very happy with the Vanguard Cash Plus account for savings (https://investor.vanguard.com/investment-products/cash-inves...), though I think it's invite-only. I see you've got plenty of good suggestions in replies, though - you'll do fine. Good luck! :)
Banks capitalize (hah) on unsophisticated deposits to underpay them and profit from the spread. Check if your brokerage has a short dated government securities money market fund (Fidelity = SPAXX [1], Vanguard = VMFXX [2]). Not investing advice!
[1] https://fundresearch.fidelity.com/mutual-funds/summary/31617...
[2] https://investor.vanguard.com/investment-products/mutual-fun...
Needless to say I'm going to be trying it out! Thanks Apple!
Edit: It looks like they have a checking account too (https://www.betterment.com/checking), which also has better terms than Chase.
People who know more about this stuff than me: is there any reason not to just move over completely? Technically Betterment is not a bank, but it sounds like these cash accounts are backed by accounts at banks that Betterment manages for you, which means they're insured (and in fact, you can insure more than $250k because multiple banks are involved). Is there any downside I'm not seeing?
There is some small risk that if betterment folds, those funds aren’t protected. It’s afaik never been really tested in court. FDIC would protect only the underlying bank - not betterment. It’s a very small risk though. But a real bank doesn’t have that risk.
A lot of these small investment companies like betterment or wealth front are on pretty shaky financial grounds - so it could come up sooner than expected.
Is it possible they'd try to claim first-dibs on your funds that are living in other banks if they went under and had to pay back shareholders?
Typically when companies/banks do this sort of pass through banking, the money isn’t actually held in a personal account at the host bank. It’s usually held in one giant account that had a “managed on behalf of many” type structure. This is legal from an FDIC perspective, but it’s held in the not-banks name (aka betterment). So if betterment goes into debt, it’s a grey area if they could use that money.
They could also mismanage money during that “temp uninsured” period. Again, they’re not a bank so they don’t necessarily comply with banking regulations so you don’t know how long that period is or what’s happening.
There are real regulated entities (banks brokers credit unions etc) that offer good rates and less risk. I don’t know why you’d expose yourself to any risk for 0.x% APR. Even Goldman Sachs (the underlying bank of apple) lets you get a good interest rate on savings directly.
Here's what their terms say:
> Upon Betterment’s instruction, Betterment Securities, acting as your agent, will open one or more Demand Deposit Accounts (“DDAs”) at Deposit Banks. Betterment Securities, as your agent, may also open one or more linked money market deposit accounts (“MMDAs”) at the Deposit Banks as indicated on the Deposit Bank List. Deposit Accounts are non-transferable.
> ...if you decide to terminate your participation in the Program, you may establish a direct relationship with each Deposit Bank by requesting to have your Deposit Accounts established in your name at each Deposit Bank, subject to each Deposit Bank’s rules with respect to establishing and maintaining deposits accounts.
This makes it sound like separate bank accounts are opened for each customer, though possibly not in the customer's name initially (with Betterment Securities acting as the customer's "agent"). So maybe better than thought?
If you do have that much in short term savings, then that savings interest is taxed as ordinary income, pretty bad for a high income tech worker.
Meanwhile money market funds are yielding over 4%. Interactive brokers is offering over 4% and it’s insured to some ridiculous amount (standard 250k + extra coverage from Lloyds of London).
You can buy 3 month or 6 month treasuries with yields well over 4%.
I don’t know why anyone would want to keep cash in the big banks, unless they really need it liquid in the short term.
I just look at Wells Faro, and they have $900 billion in interest bearing deposits. With NI of $16 billion, just going up to 1% will wipe out 55% of profit.
My point was essentially to stay viable, the bank needs to have some profit margin. Here is a classic business choice between maintaining or improving profit margin, and maintaining or improving services.
So my point was they could obviously remaining viable while offering higher rates, they choose not to because it increases short term profit - if they think they are losing enough business to other banks with better rates, presumably they will start raising them to compete.
The fact that they can't really meet current federal rates and stay profitable is interesting, it suggests they have some pretty heavy cost centers to carry.
Credit unions are typically more competitive than big banks in general. If you truly want to make the most out of every penny then you should be unbundling your bank services (checking at CU A, savings at CU B, credit at X, etc.). This is especially easy with credit unions because they are typically part of a cooperative that streamlines inter-bank transfers (it usually takes < 24hr to transfer between my savings and checking).
There can be higher yield options for long-term savings (depending on market conditions at the time). The classical wisdom is to keep your money in CDs[1], but you're locking in an interest rate for <duration>, so if interest rates go up you could lose out.
If you're saving for more than a couple (1-3) of years you really should be looking at handing over some of your money to someone who profits when you profit (money market or brokerage). Remember that even at the current ~5% of CDs, the banks have ensured that they will be making a profit even during moderate market turmoil.
It's also not a bad idea to invest in something that is guaranteed to maintain value (such a gold or platinum), to hedge against recessions.
I don't agree CUs are more competitive always than big banks. I think for the most part big banks have better credit card offerings for example. There are lots of reasons someone would go for a big bank like Chase for credit cards.
My CUs are west-coast, and I moved to the east coast last year. I haven't run into any problems. On the off-chance I had to walk into a brick-and-mortar bank (depositing cash is about the only reason I'd need to do that, so never), I could visit a coop instead.
> I don't agree CUs are more competitive always than big banks
Absolutely. We're on a mainstream brand miles reward card because my wife likes traveling. CC rewards at my CU were basically worthless - the rates were pretty competitive, though.
Until someone like Apple comes in with a one click UX to open a bank account and set everything up, existing banks have no incentive to make existing clients happier because they're extremely unlikely to move banks (or even to open a better yielding type of account)
I don't visit my bank either in most cases. However, I can if I need to. That's a different kind of peace of mind compared to a e-bank that has no customer-facing physical location.
Starling also has a banking license.
I stopped using BoA because the in branch experience has declined. I never used Wells Fargo for obvious reasons.
My previous employer had at least two different Ceridian installs, one was for W2s and the other was for regular payroll, they used different passwords, half the time they'd expire out by the time you logged in and you'd have to get HR to reset it, etc. And even if you want to go back and mess with it, when does it take effect? A lot of people don't have a cushion sitting in a bank account and can't afford to have a paycheck disappear and then spend a couple days pairing their credit card payment to the new bank account etc.
That's why you can get those $600 promos or whatever if you open a new checking account and turn on an auto-deposit. Most people will set it and leave it.
Park 250k in there and you're getting over $950 a month right now. Spread those chunks around multiple banks, assuming you have those chunks, and you'll have a decent modest income while these rates last.
And yes, I'm doing exactly this and no, I don't have a day job right now and yes, my overall holdings are still going up. This is an unusually good time to be holding cash.
Also I know the trivial inflation arguments about how I'm hypothetically losing purchasing power. But again I don't need hypothetical things to be bought, just mine.
Right now it's covering my bills and the number is still rising. This strategy is subject to change without notice.
That's the "wholesale" savings interest rate. The less you are making compared to that, the more your bank is profiting.
As an aside, the interest the banks earn from this is newly created money.
With 17 trillion dollars currently deposited, that's $833 billion of inflationary pressure every year.
[0] https://www.federalreserve.gov/monetarypolicy/reserve-balanc... [1] https://fred.stlouisfed.org/series/DPSACBW027SBOG
> With 17 trillion dollars currently deposited, that's $833 billion of inflationary pressure every year.
specifically, this part, what do you mean by pressure and which way is it pushing
> that's $833 billion of inflationary pressure every year.
Best high-yield savings accounts in April 2023:
https://www.bankrate.com/banking/savings/best-high-yield-int...
Do you have a more preferred financial website?
0.3%, or something similar.
I’ve been using different banks with real high yield for a long time. My current choice is almost 4% (after climbing a ton last year with all the hikes). A number of banks offer similar rates.
Some places are starting to offer non trivial rates on checking. I think AmEx may be paying over 1% interest on their checking accounts (I know, think it’s new) instead of the common 0.0005% if you’re lucky enough to get interest at all.
Sadly you have to shop around. Even credit unions often don’t offer good savings accounts, even if better than the big banks.
Capital One is paying 3.5% right now for "Performance Savings".
Note that these rates change in relation to the federal interest rates. You'll sign up for a great rate, and in 3 years it can go back down to a half percent