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YIELDS ON SAVINGS accounts, money market deposit accounts and certificates of deposit were so modest for so many years that it was tempting to opt for the convenience of the local bank, even if you knew you could do better elsewhere. But today, yields are much higher—and a little effort could be richly rewarded.
Suppose that, by shopping around for an online savings account, you can earn perhaps 4%, rather than settling for 1% at the nearby bank you already use. If you’ll keep $10,000 in the account, those three extra percentage points of interest would be worth $300 a year. If you saw $300 on the sidewalk, you’d undoubtedly bend over and pick it up. Finding higher-yielding savings accounts and CDs doesn’t involve that much more effort.
To find the best rates, spend some time scouring the internet or check out Bankrate.com. The banks that offer the best rates can vary from one month to the next, depending on which institutions are most aggressively seeking new customers. Still, the top yields can frequently be found at banks such as Ally Bank, Capital One, CIT Bank, Discover Bank, EverBank, Marcus by Goldman Sachs and Synchrony Bank. Most of these banks can offer higher yields because they’re largely or entirely online, so they don’t have to pay the overhead incurred by traditional banks with their hundreds, and sometimes thousands, of brick-and-mortar branches.
Money market deposit accounts often pay slightly more interest than savings accounts, but may require a larger minimum balance. Both typically limit withdrawals to six per month. Certificates of deposit usually pay even more, but your money is typically locked up until the CD’s maturity date, unless you’re willing to pay the early withdrawal penalty. CDs, money market deposit accounts and savings accounts are all backed by the FDIC—unlike money market mutual funds, where there is a small risk that you could lose money.
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This article mentions a “small risk that you could lose money” in a money market account. If a money market account holds only US Treasury securities, then is such a money market account safe from loss because its assets are backed by the U.S. Government, which also backs the Federal Deposit Insurance Corp. (FDIC)? So, from that perspective, are bank savings accounts (within the FDIC insurance limits) and US Treasury money market accounts equally safe? And, if that is true, is there any reason for an individual to have a savings account instead of a US Treasury money market account given that most low-cost US Treasury money market accounts have a higher yield than high-yield savings accounts? Thanks.
Thanks for the question. It’s hard to imagine a Treasury-only money market fund breaking the buck, though perhaps there’s some scenario where it could happen if, say, the manager mismanages the fund by reaching for yield by extending maturities too far. But I’d consider the risk to be so small it’s hardly worth considering, so — yes — I’d view an FDIC-insured savings account and a Treasury-only money market fund as equally (not) risky.