Mortgage rates doubled this year to nearly 7%, yet the interest on traditional savings accounts has barely budged. The average annual yield on a standard savings account is now up to a wan 0.14%, according to the Wall Street Journal (October 3rd edition).
The country’s largest banks can keep payouts on savings accounts low because they have plenty of deposits to cover their lending businesses for now and don’t need to attract more by raising rates. They can also count on customer inertia: Switching banks seems like a headache, so people avoid it and miss out on getting a better deal.
Our advice: If you have a savings account paying very low interest, transfer those funds to one of the options below to get your cash working for you.
- Online savings account: Perfect for emergency funds. Synchrony Bank is now offering 2.45% (synchronybank.com). The highest-paying account nationally is UFB Direct, paying out 3.01% as of October 11 (ufbdirect.com/savings). The online savings accounts compete heavily, so if yours is paying slightly less it will likely catch up with the others quickly.
- Series I Bonds: Paying 9.62% for the next 6 months when you buy by October 31, 2022. Visit link.cpplan.com/IBonds for more information and create an account at treasurydirect.gov.
- Certificates of Deposit: Check local banks for CD rates, and keep the term to 1 or 2 years at the most. Rates are expected to continue to rise, so compare rates to the online savings account rates.
- Long-term investment at TDAI: If you have a larger amount of cash in savings, you may be best served investing it with the rest of your portfolio. We can access institutional CDs paying higher interest rates than retail, and money for the longer term will be ready for a market buying opportunity. Call or email us if you’d like to discuss your situation.