By Alex vonStrandtmann, CPA, MBA
We spoke with a number of clients and friends after our last posting about the banking turmoil. While tracking the banks in the stock market is still like following a roller coaster, it has become apparent that there are still a number of you that aren’t being paid much interest on your bank balances. Over the last several years, we got so used to not receiving any interest on our bank balances that it has become all too easy to accept that. Today it shouldn’t be.
As you are aware, over the past year, interest rates have significantly increased. This has been a significant shift from the relatively low rates that have prevailed in recent years, and it has had an impact on a wide range of financial products. Borrowed funds such as loans and mortgages have seen their rates increase, reflecting the higher cost of borrowing.
However, despite the higher rates in the loan market, many banks have not yet increased the rates they pay on savings accounts. This has left many savers feeling frustrated and looking for ways to boost their returns. If you are in this situation, there are a few steps you can take to try to secure a higher rate.
First, you can speak with your existing bank and ask them to reconsider their rates. Many banks are willing to negotiate with their customers, especially if they have a long history with the bank and a large account balance. If your bank is unwilling to increase your rate, you may want to consider shopping around for a new bank that is willing to pay more.
In today’s competitive banking market, there are many banks that are eager to attract new customers and are willing to offer higher rates to do so. By comparing the rates of different banks, you can find one that is willing to pay a competitive rate on your savings. When shopping for a new bank, be sure to consider not just the interest rate but also any fees that may be associated with the account. For example, some banks may charge a monthly fee for a high-yield savings account, which could eat into your returns.
In addition to speaking with your bank or shopping around for a new one, there are a few other strategies you can use to try to boost your returns. One option is to consider using an online high-yield savings account or money market account. These types of accounts typically offer higher interest rates than traditional savings accounts, and they can be a good choice for savers who are willing to trade off some convenience for a higher return.
For additional security, you can consider a treasury money market account that may have similar FDIC limits, however, since they are invested in treasuries, they have added security of being backed by the Federal government. Let’s face it if the Federal government defaults, we are all in a lot more trouble than a bank failing. The current 7-day yield on some Treasury money market accounts are over 4.5% which is state and city tax free.
Another option is to consider using a certificate of deposit (CD). CDs typically offer higher rates than savings accounts, and they come with the added security of FDIC insurance. However, they also have some downsides, such as early withdrawal penalties and the need to commit your money for a set period.
Ultimately, while interest rates have significantly increased over the past year, many banks have not yet passed on these increases to their customers in the form of higher rates on savings accounts. If you are looking for a better rate, it may be worth speaking with your existing bank or shopping around for a new one that is willing to pay more. Just be sure to consider all of the factors, including fees, convenience, and stability, before making a decision.
Contact us for additional guidance at 631-368-3110.