How Important Is A High-Yield Savings Acct To You?

racecar | Sep 28, 2024 | 628 posts since 2014

How many of you actually keep a good portion of your funds in a savings account instead of a CD?

I've been on DA for 10+ years, but always to find a good CD rate, not for savings accounts.

I see a lot of posts on savings account specials (and these days, declines) but I never understood the excitement in a product with typically no guarantee that the rate won't change tomorrow.

In a rising rate environment, I can understand having a temporary place for your funds while you wait for a CD deal. But as rates fall, like now -- even if savings rate-drops lag behind CDs -- it would still seem more prudent for someone to grab a CD ASAP before CD rates drop even more, no? For instance, EFCU just cut their rates again yesterday (9/27). Each day someone waits to open up a CD, the less the CDs pay.

I have a couple high rate savings accounts myself that sitll pay 5% but they're hardly used, as if I have enough, I'll open a CD asap instead.

Unless you really need your money liquid and handy, I'm curious if people actually use their savings accounts for a large chunk of their funds for anything other than just a very temporary basis...

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DannyKyle | Sep 29, 2024 | 68 posts since 2022

What you have described is your situation or desire. Banks and financial institutes have offered many investment options to satisfy the desire of each individual, hence there are CDs, HSAs, Immunity, Long term CDs, Ladder CDs, Stocks, Bonds, Funds, S&Ps, and even 0% APR checking accounts. Each individual picks their own best option and goes along with it. Perhaps some percentage of folks are literally brain dead and not looking into high earning options, but those are mostly with very low cash balance. Folks with high cash flow or high saved cash always stay on top of their games and perhaps that's why they have lots of cash. And then there are the extremely rich who do not hang around on sites like DA, but they have financial advisors managing their portfolio. It's nothing to do with whether one has a better option than the other. There are folks calling HSAs and CDs safe investors stupid and beating the drum about risky S&P is a better option. There are folks who only go for safe HSAs and CDs safe investment and calling stupid people who invest into risky S&P. Same goes for folks who lock into long term CDs vs some who are die hard of ladder CDs. Neither is right or wrong and both sides of the folks literally waste their energy with arguments and impact nothing on anyone's decision literally. That's why diverse portfolio even with whatever investment cash one has is the best option in most cases.

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w00d00w | Sep 29, 2024 | 360 posts since 2012

i think inertia is a significant factor for holding significant sums of money in savings accounts. even Jason Zweig in a recent WSJ column mentioned he had an inherited IRA that was in short term cash equivalent only and that he basically forgot about putting in a longer term investment (his preference being TIPS). if money ends up in a savings or money market fund, sometimes it just sits there because when life is super busy, going into the account and manually investing it in another longer term fixed income product is just another mundane task low on the "to do" list.

the inverted yield curve is another factor. much easier psychologically to put money into a higher yielding fixed income product than a lower yielding one. when the yield curve has a more usual configuration, extending duration becomes a more reflexive choice.

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