Gaining Interest: Getting More for Your Cash Savings

Yankie Kreiswirth was getting eaten alive by inflation. But he was fighting back. One way was by dealing with the cash sitting in his bank accounts. Keeping large cash balances was integral to his strategy of looking for business opportunities and grabbing them as they came up, but in the meantime, the well-known bank he was using for his checking and savings accounts was paying virtually zero interest. Why? Rates had skyrocketed, and the bank could presumably lend very profitably now.

Every day, his cash was losing value, and Yankie knew he had to squeeze some real yield out of his savings. But how?

Big Banks Don’t Need Your Money

The big banks like JP Morgan, Wells Fargo, and Bank of America can offer excellent convenience, safety, and service beyond what many small local banks can. Because of that, the behemoth institutions are flooded with cash and don’t feel competitive pressure to offer market rates of interest on the accounts. When inflation was low, no yield was a halbe tzarah, but now, leaving money earning .01% is costly. Inflation is destroying buying power, and we need to fight that. Today there are many better cash options for those who take a bit of initiative to overcome inertia and find safe solutions.

But Call Anyway

The simplest thing you can do to try and increase the interest paid on your savings is simply call the bank or walk into your branch and say you plan on leaving if they don’t offer you a lot more. Especially for those with larger sums, that call can bump rates up significantly. The relationship manager may counter a bit, but getting an additional of 1–3% is possible even at larger institutions. While this is still beneath today’s inflation rate, at least it is mitigated somewhat—after all, 2% interest is better than nothing.

More Money in the Clouds

There are several other options available for those looking to earn the highest-possible interest rate on their cash savings while maintaining total safety of principal. For example, online-only banks have much lower overhead costs than traditional banks, so they are often glad to offer significantly higher interest rates on their savings accounts. Whereas JP Morgan is quoting .01%, some online banks are quoting 4% or more at the time of this writing. (See image, which is the result of a quick search at bankrate.com.) That’s real money, and it may well be worth making the switch.

Online Banks are Convenient and Safe

For those with constant access to computers, online savings accounts offer much of the convenience of traditional savings accounts along with the better rates. In fact, their technology is often slicker and smoother than dodgy old banks’. Funds can be easily transferred to and from online bank accounts, and most online banks offer mobile apps for easy access to account information and remote check deposits. As long as they are FDIC insured, depositor’s funds up to $250,000 per account type per person are totally safe in these banks. Many who switch to online banks never look back. You can easily shop around online by rate and services and try it out.

CDs for Added Yield Boost

Certificates of deposit, or CDs, are another option for earning a higher interest rate on cash savings. Traditional CDs offered by banks require the depositor to keep their funds in the account for a set period of time. Funds removed during this term will get penalized with a deduction of promised interest. But in exchange for this lock-up period, CDs tend to offer higher rates versus savings accounts, which provide 100% liquidity. Often, these rates are in the vicinity of what online banks are offering for 100% liquid savings accounts, but if you’re leaving money in a traditional bank, CDs might be worth it. Within FDIC limits, regular CDs are all equally safe, so shop around. (Brokered CDs are another schmooze.)

Treasuries: An Unlimited Guaranteed Option

Relying only on FDIC insurance limits is not practical for those with greater sums in cash. Where can large depositors get better rates on fully backed cash? Treasury bills are the short-term versions of bonds, issued and fully guaranteed by the US government. They are one primary solution used by large corporations, pension funds, and even foreign governments to store vast sums of liquid cash securely. Treasury bill rates as of this writing are over 4 percent, making them a great option for parking sums that are not covered by FDIC insurance.

Buying and Managing Treasuries

These government bonds can be purchased directly from the US Treasury through its TreasuryDirect website or through brokerage firms like Fidelity, Schwab, and Vanguard. Make sure you focus on the short-term options if your goal is securing short-term cash. Treasury bonds can have expirations stretching out for years and decades. Some people may be intimidated by the need to sift through individual treasury bills and roll them over as they expire. You can get some help from traders at brokerage firms at the price of a spread or commission.

Treasury Money Market Funds

Fortunately, there is a much easier option to get the security and interest rates of treasuries with the simplicity of a savings account. Money market funds are mutual funds that invest only in very short-term, very high-quality debt instruments. Money market funds are not backed by the US government, but since they are invested in only the highest-quality and shortest-term loans, they maintain a very low level of risk. They are easily accessible via brokerage accounts at Fidelity, Vanguard, etc. and often can be accessed as easily as a savings account with today’s rates north of 3%.

Full Safety, Liquidity, and Great Yield

The clincher here for me, though, is using a money market fund that only invests in treasuries! Buying into a treasury money market fund is an indirect way of depositing unlimited sums with the federal government, which is the strongest financial guarantee available. Basically, you are paying a small fee to the manager of the fund to select the treasuries and offer constant liquidity and convenient access. Vanguard’s Treasury Money Market Fund (VUSXX), for example, is offering 3.84%. This is a no-brainer.

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