Leave Your High Yield Savings Account Alone
“What goes up must fall” is not only how gravity works – unfortunately, it also applies to the United States economy. Unfortunately, there cannot be bull markets and rainbows all the time. If you’ve been in awe of the interest rates on high-yield savings accounts, which just a few months ago climbed above the 2% mark, it’s time to start rethinking your expectations.
Notice I didn’t say, “Panic and transfer all your money immediately.”
For so many years during and after the recession, we had a mutual understanding that interest rates on savings are simply irrelevant. But over the past few years , with the Federal Reserve calling for nine consecutive rate hikes, banks have gradually rewarded customers with higher rates on high-yield savings accounts. In June, the average APY of savings at online banks (usually offering the highest interest rates with high returns) was 1.69%.
But the handy chart above stops tracking just a month before the Federal Reserve began to backtrack on those interest rate hikes. In July, he cut interest rates for the first time since 2008. And so clients of high yielding savings began to receive notifications that their interest rates were going down.
What to do if your high yield interest rate goes down
Just as it is not worth moving from one bank to another because of a slight increase in the interest rate, it is not worth changing the bank in order to avoid a slight decrease. This new bank may end up adjusting its rates at any time, leaving you with one more low interest rate.
Yes, I watched with glee as my online APY savings fell from 1.8% to 2% and 2.3%. Now I watched it fall to 2.1% and then to 1.9%. But my economy hasn’t changed. I still have the same automatic transmission set up. The money I’ve already saved doesn’t lose value — it just gains value more slowly. And since I don’t expect my money to turn into millions at an interest rate of 1.9%, it’s safe to say that I’m comfortable with these rate fluctuations.
If you don’t like sitting back, you have several options.
First, you can transfer some of your money to CD. Since CDs have a fixed term, you receive the same interest rate for the entire period of time (six months, a year, whichever option you choose). The longer the term, the higher the interest rate. But you can’t add money to a CD after you’ve funded it, and you can’t withdraw money in the middle without paying a huge fee. The exception is the no-fines CD , which usually has a slightly lower APY than a regular CD and allows you to get all the money back immediately if you want.
Another option is to invest more money. Despite all the worries about the economy, the stock market is still in good shape. You can add to your retirement account with tax credits or deposit more into a non-retirement brokerage account. The risk is greater, but the potential for long-term growth is greater.
But if, like me, you use your high yielding savings account for your emergency fund, a traditional CD and investment won’t be all that helpful in case you need to get liquidity fast.
For money that is easy to receive within a few days, it is probably best to leave it in this high yielding savings account. Even if the interest rate dropped to less than 2%.