I don't understand the point of $100K+ high yield savings accounts...

[urbex]

I spent all day yesterday doing some credit card maintenance (CLI requests, closing low limit cards, etc), and kept getting ads for the high yield savings accounts where the banks are offering seemingly sizeable bonuses for depositing $100K+ in savings accounts. 

I'll straight up admit it - I'm very good with numbers in general, but also a complete neophyte with finances, lol.  My employment/income situation has changed dramatically over the past couple of years, and it's the first time I've had more than a few thousand floating around in checking/savings. 

I think I understand the general idea of savings accounts - getting better interest than checking accounts while still maintaining liquid access. But looking at interest rates, I can do better with things like CDs, money market accounts, and other investments.  I also can't walk in to a bank, say I'm buying a new Mercedes today, and walk out with $100K in cash, so the liquidity is still limited to a point even with a regular savings account. 

So I'm not following what the benefit here is with these large balance high yield savings accounts... I'm not at all trying to say that people who use them are stupid, rather it's much more likely that I'M the stupid one, lol. But there can't be that many people out there like me that have suddenly came in to nice money and doesn't know what to do with it...

[GZG]

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@urbex wrote:

I spent all day yesterday doing some credit card maintenance (CLI requests, closing low limit cards, etc), and kept getting ads for the high yield savings accounts where the banks are offering seemingly sizeable bonuses for depositing $100K+ in savings accounts. 

I'll straight up admit it - I'm very good with numbers in general, but also a complete neophyte with finances, lol.  My employment/income situation has changed dramatically over the past couple of years, and it's the first time I've had more than a few thousand floating around in checking/savings. 

I think I understand the general idea of savings accounts - getting better interest than checking accounts while still maintaining liquid access. But looking at interest rates, I can do better with things like CDs, money market accounts, and other investments.  I also can't walk in to a bank, say I'm buying a new Mercedes today, and walk out with $100K in cash, so the liquidity is still limited to a point even with a regular savings account. 

So I'm not following what the benefit here is with these large balance high yield savings accounts... I'm not at all trying to say that people who use them are stupid, rather it's much more likely that I'M the stupid one, lol. But there can't be that many people out there like me that have suddenly came in to nice money and doesn't know what to do with it...

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I mean typically those bonus offers, (at least the good ones anyway) are at least 6%+ APY for the term you have to hold the money for the bonus, so it's not a complete loss to move that much money over there. usually it's just a math question.

and the ramsey 6 month principle (6 months of expenses in a liquid HYSA) still pretty much universally applies to everybody, even for people with considerable assets, what might be $10-$25k for an average person of modest means could easily be $50k-$100k

saving up $10k-$25 that sits in a savings account untouched unless life happens, is probably the next step for you in case life happens and you have to take a step back from where you are now

sure you'd make more throwing it into some stock market etf for ~10%, but if life happens tomorrow, stock prices aren't particularly interested in your current life predicament 

[urbex]

No no, I'm not saying I don't understand why I should be building savings, but rather why specifically people are using these HYSA products instead of throwing that kind of large deposits in CDs, money market accounts, and other even higher yield accounts as opposed to a savings account, because at least on the surface, even a HYSA seems to be on the lower end of APRs. 

I started looking at this mainly because I do have some significant savings building up (well, significant for me anyways, lol).  I'm just now getting comfortable with the idea that I also have significant credit to leverage (currently around $165K on credit cards), so I don't necessarily need large amounts of instant access cash (put it on credit card, pay off next week kind of thing), and really should be looking at having this money sitting in something other than a 0.1% APR account, lol. 

I'm not yet at the point of looking at $100K balances, but it was still something that caught my eye, and made me wonder why people would drop $100K+ in a lower APR account...as in a "what am I missing here" kind of way.  I understand the 6 month emergency fund, but it seems like I'd be better to plop $20K in a 5.5% money market account than a 4.25% HYSA, at least on paper.  Even as a 6 month fund, where I could just transfer a month's worth of expenses once a month if needed.  I wouldn't necessarily need to be treating that as my daily checking account. 

[GZG]

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@urbex wrote:

No no, I'm not saying I don't understand why I should be building savings, but rather why specifically people are using these HYSA products instead of throwing that kind of large deposits in CDs, money market accounts, and other even higher yield accounts as opposed to a savings account, because at least on the surface, even a HYSA seems to be on the lower end of APRs. 

I started looking at this mainly because I do have some significant savings building up (well, significant for me anyways, lol).  I'm just now getting comfortable with the idea that I also have significant credit to leverage (currently around $165K on credit cards), so I don't necessarily need large amounts of instant access cash (put it on credit card, pay off next week kind of thing), and really should be looking at having this money sitting in something other than a 0.1% APR account, lol. 

I'm not yet at the point of looking at $100K balances, but it was still something that caught my eye, and made me wonder why people would drop $100K+ in a lower APR account...as in a "what am I missing here" kind of way.  I understand the 6 month emergency fund, but it seems like I'd be better to plop $20K in a 5.5% money market account than a 4.25% HYSA, at least on paper.  Even as a 6 month fund, where I could just transfer a month's worth of expenses once a month if needed.  I wouldn't necessarily need to be treating that as my daily checking account. 

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well CDs aren't liquid and many are probably risk adverse to the penalties for breaking a CD

and why not a 5.5% money market vs. a 4% HYSA?

https://www.doctorofcredit.com/high-interest-savings-to-get/ 

well yeah, the 5.5% would be better, but I imagine it's because people prefer to have their money with big places they know as opposed to a bunch of places they've never heard of before. even if the money has the same FDIC insurance

There's a reason all of the big name banks with HYSA are ~4%

while "poppy bank" and "mybankingdirect" and "brilliant bank" can offer ~5.35-5.5%, they don't have the expenses the big corpo banks do nor the need to compete solely on the highest interest rate.

[IsambardPrince]

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@urbex wrote:

I spent all day yesterday doing some credit card maintenance (CLI requests, closing low limit cards, etc), and kept getting ads for the high yield savings accounts where the banks are offering seemingly sizeable bonuses for depositing $100K+ in savings accounts. 

I'll straight up admit it - I'm very good with numbers in general, but also a complete neophyte with finances, lol.  My employment/income situation has changed dramatically over the past couple of years, and it's the first time I've had more than a few thousand floating around in checking/savings. 

I think I understand the general idea of savings accounts - getting better interest than checking accounts while still maintaining liquid access. But looking at interest rates, I can do better with things like CDs, money market accounts, and other investments.  I also can't walk in to a bank, say I'm buying a new Mercedes today, and walk out with $100K in cash, so the liquidity is still limited to a point even with a regular savings account. 

So I'm not following what the benefit here is with these large balance high yield savings accounts... I'm not at all trying to say that people who use them are stupid, rather it's much more likely that I'M the stupid one, lol. But there can't be that many people out there like me that have suddenly came in to nice money and doesn't know what to do with it...

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The best savings, money market, and CD accounts are all online and none of them require a hundred grand in there to get good interest rates.

If you're doing deposit accounts with the big boys (Chase, Wells Fargo, BofA, PNC, etc.) 2005 called and they want their flip phone back.

[urbex]

I didn't say they all require 100K.  I'm was trying to figure out why people would choose that kind of account that DOES require a large deposit as opposed to other kinds of accounts.  That's all.  I didn't realize it was going to be a complicated question.  Sorry.

[Kforce]

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@urbex wrote:

I didn't say they all require 100K.  I'm was trying to figure out why people would choose that kind of account that DOES require a large deposit as opposed to other kinds of accounts.  That's all.  I didn't realize it was going to be a complicated question.  Sorry.

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I am confused as to what accounts you are referencing.

Most HY-Saving, HY-Checking and MM accounts have rather low deposit requirements.

Some have tiers, where larger deposits = better interest rates on deposits.

[IsambardPrince]

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@urbex wrote:

I didn't say they all require 100K.  I'm was trying to figure out why people would choose that kind of account that DOES require a large deposit as opposed to other kinds of accounts.  That's all.  I didn't realize it was going to be a complicated question.  Sorry.

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They have them because people use them I guess. I don't know why anyone would use them. The big banks are where your money goes to die while they loan it to other people at horrific interest rates and pay you nothing.

It's possible that they may be trying to attract indirect deposits. Some people who are so wealthy they can't put all their money in one bank or else it wouldn't be FDIC insured set up a frontend account with one institution that goes around depositing money in a lot of banks so it's all FDIC insured through the partitioning, and then the frontend bank displays it as one logical account.

There's many rich people and business executives who are not smart enough or good enough to be at the level they're at.

When SVB collapsed, you heard about a bunch of California rich people and tech company CEOs that stuffed millions of dollars in a bank account.

According to deposit insurance laws, they should have lost most of it, but the Administration broke the law and created a program where the deposit insurance fund covered uninsured deposits, then increased the assessment on banks that didn't do anything wrong, in order to bail out the wealthy.

In turn, those banks do things that rob the poor and middle class to make up for the bailout, like jacking up account fees, lowering deposit interest, and increasing credit card interest rates and nuisance fees.

Chase Bank (and many others) never loses when other banks fail. They just gobble them up and get bigger while the losses are spread around to depositors and taxpayers.

Most of those First Republic branches that became Chase branches are now being closed and people are being laid off, and the clients are being told to find a Chase branch. Chase didn't want branches, they wanted the assets and the customers.

Very few people are in a position where they have so much money that they have to have concerns about FDIC limits. If over 2/3rds of Americans couldn't fund a $1,000 emergency without turning to debt products, I doubt many care why a bank account that wants $100,000 to earn a noticeable amount of interest exists.

But truth be said, these accounts shouldn't matter a lot to the rich either. Having a bunch of liquid cash when you're rich is a missed opportunity to invest. Most people in their sleep could earn more than a paltry 1-2% at a megabank.

[FicoMike0]

I'll offer that savings accounts offer both liquidity and convenience. I keep some funds in a savings where I can walk in and walk out with $1500. I can also deposit cash there. I don't have any cds right now, I don't see much value, the rates aren't that high.

I keep most of my " uninvested capitol" in a brokerage account that pays 5%. On the rare occasion when I go into margin, I pay 13%, I try to avoid that. I often have > $10,000 in that account. I find it convenient and liquid in that I have immediate investment access to it. I can also ach it to other banks in two days. Of course, I can't same day access it as cash.

[IsambardPrince]

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@GZG wrote:

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@urbex wrote:

I spent all day yesterday doing some credit card maintenance (CLI requests, closing low limit cards, etc), and kept getting ads for the high yield savings accounts where the banks are offering seemingly sizeable bonuses for depositing $100K+ in savings accounts. 

I'll straight up admit it - I'm very good with numbers in general, but also a complete neophyte with finances, lol.  My employment/income situation has changed dramatically over the past couple of years, and it's the first time I've had more than a few thousand floating around in checking/savings. 

I think I understand the general idea of savings accounts - getting better interest than checking accounts while still maintaining liquid access. But looking at interest rates, I can do better with things like CDs, money market accounts, and other investments.  I also can't walk in to a bank, say I'm buying a new Mercedes today, and walk out with $100K in cash, so the liquidity is still limited to a point even with a regular savings account. 

So I'm not following what the benefit here is with these large balance high yield savings accounts... I'm not at all trying to say that people who use them are stupid, rather it's much more likely that I'M the stupid one, lol. But there can't be that many people out there like me that have suddenly came in to nice money and doesn't know what to do with it...

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I mean typically those bonus offers, (at least the good ones anyway) are at least 6%+ APY for the term you have to hold the money for the bonus, so it's not a complete loss to move that much money over there. usually it's just a math question.

and the ramsey 6 month principle (6 months of expenses in a liquid HYSA) still pretty much universally applies to everybody, even for people with considerable assets, what might be $10-$25k for an average person of modest means could easily be $50k-$100k

saving up $10k-$25 that sits in a savings account untouched unless life happens, is probably the next step for you in case life happens and you have to take a step back from where you are now

sure you'd make more throwing it into some stock market etf for ~10%, but if life happens tomorrow, stock prices aren't particularly interested in your current life predicament 

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I don't think you need exactly 6 months, but at least a few. Longer than that I'd be building out some CDs and chasing that yield. Even if it's only an extra 0.8% that can add up.You can even look into 11 month or 13 month no penalty CDs and typically you can take all the money out as long as it's been funded for about a week, but you'll lock in rates that tend to go higher than HYSA or MM.

HYSA and MM are variable which means that the bank can change them on you at any time. In a rising interest rate environment you probably hope they do, but in a falling rate environment, you really rather they do not.

As we approach the September Fed meeting, I think a case could be made for locking your money into CDs, even if they're just No Penalty.

You lock in these higher rates, some on a no penalty are 5% or 5.15% even, and you get that for the 11 or 13 month term and the worst thing that could possibly happen is you need to take them early.

I recommend putting in the lowest amount and just buying a lot of them if there's a $500 or $1000 minimum. That way if you need an ungodly amount of money for some reason you can break multiples but if you only need $500 you're not breaking into a $20,000 CD or something and losing all the term interest on the whole thing.

The point is, you want to use the bank to build your emergency savings and long term reserves. You can do that by accepting less liquidity, but on a No Penalty CD that's not much less liquidity, or with a CD ladder.

The bank is fleecing people on car loans, student loans, personal loans, credit cards, and mortgages on the other end of that, so why should you give them a break and not make much of anything on the deposit side?

Fact is, most debt is toxic.

The rich don't use debt to buy a Tesla Cybertruck, the rich use debt as a tool to make money by acquiring income-producing assets that will, on the whole, outpace the rate of debt.

Going into debt to buy toys and keep up with the neighbors is a middle class thing. A car is not an investment. Most of my investments go UP. And I can make those investments because I didn't agree to have maxed out credit cards and car loans coming out my ears and to go $150,000 in the hole to study Forestry at the local college.

At the other side of the debt, people who invested will generally have a lot more money than they put in, and the people who bought a car will have an old car they paid too much for that they won't get much if they sell. The bank is happy to let them keep it at this point.

"My employment/income situation has changed dramatically over the past couple of years, and it's the first time I've had more than a few thousand floating around in checking/savings."

I sort of figured my situation could only get better from where it was at 4 years ago when I decided to file bankruptcy. It surely wouldn't get better if I didn't get all the debt off my back. If I tried to file bankruptcy just 6-7 months after I did, there would have been assets for the trustee to take, but the bankruptcy estate is created at the time you file, and the means test happens then too. And at the time I had nothing as far as non-exempt assets, so there was never going to be a better time to file. It was the best decision I've ever made and it allowed me to recover swiftly without any of it going to my creditors.

"So I'm not following what the benefit here is with these large balance high yield savings accounts... I'm not at all trying to say that people who use them are stupid, rather it's much more likely that I'M the stupid one, lol."

I don't recommend savings accounts.

Money Market accounts, you can make multiples to get past the 10 withdrawal transaction a month limits. Bundle up your credit card payments and pay in full to keep the outgoing transactions down, pay your rent with it so that you benefit from the interest while it's in the mail or on your landlord's desk. But like I said before, you don't want a ton of money in this. It's less "stupid" than leaving a bunch in a checking account.

Right now you should look for at least 4-4.5% on a Money Market Account. You get checks and a debit card, but by using the credit cards and farming their highest rewards rates and only using them for spending you'd be doing, you don't make a lot of outgoing transactions that will put you past the MM limit. Then roll what you don't need for more than a few months out into No Penalty or regular CDs. No Penalty lock in rates for 11-13 months, regular CDs pay more interest but have an early withdrawal penalty, which varies by bank. Look for one that has a 60 day penalty and then put relatively small amounts into a ton of CDs, leaving some No Penalty ones around as an additional liquidity source if you were to deplete your MM.

You can still use No Penalty CDs if we're ever in a rising interest rate environment again. Just break them and buy a new CD if interest rates go up. In fact, I didn't buy any regular CDs when interest rates were on the rise. I kept breaking them and opening a new account whenever rates went up even a little.

You can also break them and open a new one every now and then to reset the term in case the bank lowers rates on you. But I'd move into regular CDs in a rate environment that's expected to fall.