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

[IsambardPrince]

As a bumper post to my last one, once you have more liquid/cash investments that are only going to do so well, it makes sense to open a zero commission investment account. 

Most of the good ones give you tax optimization so that it will recommend selling off your assets later in a way that lets you take advantage of the long term capital gains rate, which for most of us here is ZERO PERCENT.

That's right. If you hold an investment for under 1 year and 1 day then you pay Short Term, which is your normal income tax rate, if you take the long term rate it can be no Capital Gains tax. This means you can take the money you earn at work and make it produce more income and essentially the IRS won't penalize you for it if you held it a while.

In our position, we can buy Walmart stock at a 15% discount to that day's price. If we hold it at least a year and a day and sell it, we don't pay a Capital Gains tax on it. We can only buy up to $1,500 like this, but it's an obvious go-to for Walmart employees who have already put the maximum 401(k) match of 6% into their retirement account. Walmart is always looking for a way to cut hours or give you crap, and they put all these benefits on the table that nobody even looks at.

Due to not having lifestyle inflation and a bunch of junk and eating out every night, Walmart throws in 6% of your check into a retirement account that you get to keep. There's no vesting period anymore. It's your money the day it goes in there.

I never stick to asset allocation funds, I always do my own thing and I always do well. I time the market against advice and I've always beaten the S&P 500 ETFs although sometimes allocating there makes sense. I would say it no longer makes sense. I bought a lot of shares in a bond fund after it collapsed over 30% and it's been on the rise again lately. It will do better as the Fed cuts rates and bond prices rise. We'll be in a recession soon and stocks will fall.

If you are set it and forget it, ETFs generally still make the most sense, even if it's just putting all your money in an S&P 500 ETF and walking away. Just don't freak out if the stock market tanks. Look at the long term picture. These funds tend to return an average of 8-11% per year over the long term despite the downturns. Actively managed funds have usually done a lot worse than that despite the broker fees. They call them a broker because they make you broker and broker and broker.

Avoiding non-productive debt like car loans and credit cards is where the middle class needs to start investing because with all your money being eaten up in interest due to the bank, you won't have anything to invest and then you can't make money on the investments.

A non-productive car loan means a car that exceeds its utility value. If you can have a $20,000 car that gets you around reliably for many years, and you have a $160,000 Cybertruck that has problems right out of the factory, and you get the Cybertruck and buggy software and safety hazards, mechanical issues, and it just sits out there and rots, you've thrown away $140,000 plus whatever the interest is on your loan.

[IsambardPrince]

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@FicoMike0 wrote:

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.

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You can do better than 5% on a lot of CDs and even T-Bills right now.

[urbex]

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@IsambardPrince wrote:

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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.

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Thank you for being one of the seemingly few that understood I wasn't asking why one would have any savings accounts at all, lol.  I have 30 grand spread out over multiple checking and regular savings accounts already, well beyond the 6 month fund level, and largely just due to the mindset of when I was living paycheck to paycheck still - if my sole debit card got lost/compromised or the auto bill pay went awry, I would have been absolutely up the proverbial creek without a paddle.  So I started spreading the money around multiple accounts, and I only recently realized it was stupid to leave that kind of money in 0.01% APR accounts. 

I can't think of a single reason I would need immediate access to anything more than $1,000 in actual cash anyways.  Some major home repair is either an insurance job, or something that would take long enough to get a cashier's check from the bank on a money market account if it was really needed.  Car has a catastrophic failure?  I get home and take another car, or put it on a credit card and pay it off 3 days later online.  Someone ends up in the ER?  Never in my life have I ever seen an ER that takes cash only, lol. 

But "they exist because people buy them" is a pretty solid reason, I suppose.  Much like a good chunk of the retail market.."If widget X is utter trash, why do so many big name companies sell this garbage??"  Answer - because they sell

[ptatohed]

I'm confused by the question.  I don't think it's fair to say that HYSAs are lower than MMAs or CDs.  They seem equally competitive to me!  I have several HYSAs all over 5%.  Primis, upgrade, LendingClub, Popular Direct.  Not sure what $100,000 has to do with anything?  Other than getting high(er) bonuses (vs lower deposits)?  In fact I have some Sallie Mae CDs stuck at 4.X% because I bought too early (hindsight).  

As for bonuses, why not?  I am currently nearing the end of my 90 day hold period for a $100,000 360 CapOne savings where, yeah the rate is only 4.X%APY but, I'll earn about $1000 in interest, plus $1500 in bonus = $2500 on $100,000 invested, for 90 days = 10% APY.  

Also doing a Lending Club HYSA for $50,000 for 90 days for $500 bonus, at a 5%+ APY (which is great, even with no bonus).  

I love HYSAs!!!  (At least in this current savings account high APY climate (won't last forever)).  

[iced]

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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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There's several reasons why someone might throw 100k into a savings account:

1. The person has a dislike/distrust/fear of investment options like stocks or bonds, and sees savings accounts as the closest thing to a mattress they're going to get.

2. People hoping that by dropping an amount like $100k into one of that bank's offerings, they're garnering favor (aka "building a relationship") for better consideration on some of that bank's other offerings.

3.  Some just don't care how their money works, so they throw it in a bank they already deal with. It's also an easy option for those who lack financial knowledge and don't really understand how things like compounding work, are susceptible to sales tactics, or are looking for a simple interest number they can understand. 

4. Savings accounts are the liquidiest liquid you can get. Great for short-term cash. I myself keep around $100k in various money market and savings accounts just because I might want to tap some of it in the next day or week. This makes a lot of sense when $100k isn't a very large percentage of someone's total wealth portfolio, but not so much when it's a significant percentage of someone's net worth. Too far in the latter direction and the reason looks more like the first one above.

[IsambardPrince]

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@urbex wrote:

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@IsambardPrince wrote:

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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.

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Thank you for being one of the seemingly few that understood I wasn't asking why one would have any savings accounts at all, lol.  I have 30 grand spread out over multiple checking and regular savings accounts already, well beyond the 6 month fund level, and largely just due to the mindset of when I was living paycheck to paycheck still - if my sole debit card got lost/compromised or the auto bill pay went awry, I would have been absolutely up the proverbial creek without a paddle.  So I started spreading the money around multiple accounts, and I only recently realized it was stupid to leave that kind of money in 0.01% APR accounts. 

I can't think of a single reason I would need immediate access to anything more than $1,000 in actual cash anyways.  Some major home repair is either an insurance job, or something that would take long enough to get a cashier's check from the bank on a money market account if it was really needed.  Car has a catastrophic failure?  I get home and take another car, or put it on a credit card and pay it off 3 days later online.  Someone ends up in the ER?  Never in my life have I ever seen an ER that takes cash only, lol. 

But "they exist because people buy them" is a pretty solid reason, I suppose.  Much like a good chunk of the retail market.."If widget X is utter trash, why do so many big name companies sell this garbage??"  Answer - because they sell

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Assuming that individuals in a marketplace are rational actors is a flawed reasoning that will lose you a lot of money.

You or I might see the absurdity of someone who can't afford a $3,000 Macbook today putting it on an Apple credit card and assuming there will be $3,000 plus interest later, when a hell of a nice Chromebook is no more than $700 and runs Linux and Android apps, has a fast processor, lots of memory and storage, a touchscreen, a "retina" type display, and 10 years of support.

If you invested assuming that people are logical, then Apple wouldn't have investors. They make money because people buy the thing and worry about what they'll pay for it with later.

Their marketing department at Apple is really something else. "8 GB of RAM is really 16 when you think about it." No it isn't. "We changed how credit cards work!" No you didn't.

It's the same with any product.

For many of us that have stopped taking the daily "blue pill" that easy credit offers, we see the horrors of living paycheck to paycheck and have started getting really "mean and aggressive" about cutting costs and budgeting so we'll never have to be bankrupt and eating food that other people tossed in the garbage again.

That's a true story. Today I don't worry about money on a daily basis, or even a month-to-month basis, but 4 years ago in the middle of bankruptcy, I was pulling food out of the garbage that people who went to the food pantry didn't want. 

They were not intelligent enough to figure out how to use a sweet potato or some cans of beans, so they just set it out by the trash can in Motel Hell, and I would make sure that it was safe to eat, and cook it because I was trying to make sure we'd live and they had just thrown at least $8 of food out that day and ordered a fast food pizza.

It's striking to see examples of waste among people who have nothing and spend all their money at the state owned drug dispensary, but yet there we have it.

[IsambardPrince]

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@iced wrote:

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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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There's several reasons why someone might throw 100k into a savings account:

1. The person has a dislike/distrust/fear of investment options like stocks or bonds, and sees savings accounts as the closest thing to a mattress they're going to get.

2. People hoping that by dropping an amount like $100k into one of that bank's offerings, they're garnering favor (aka "building a relationship") for better consideration on some of that bank's other offerings.

3.  Some just don't care how their money works, so they throw it in a bank they already deal with. It's also an easy option for those who lack financial knowledge and don't really understand how things like compounding work, are susceptible to sales tactics, or are looking for a simple interest number they can understand. 

4. Savings accounts are the liquidiest liquid you can get. Great for short-term cash. I myself keep around $100k in various money market and savings accounts just because I might want to tap some of it in the next day or week. This makes a lot of sense when $100k isn't a very large percentage of someone's total wealth portfolio, but not so much when it's a significant percentage of someone's net worth. Too far in the latter direction and the reason looks more like the first one above.

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"1. The person has a dislike/distrust/fear of investment options like stocks or bonds, and sees savings accounts as the closest thing to a mattress they're going to get."

I don't inherently fear stock ETFs or bond ETFs. I also value having enough money in relatively liquid form that is growing because I've been through serious financial trauma and it was only four years ago. Not touching retirement accounts while there's a bankruptcy going on and you're eating out of the trash is at least disciplined if it's nothing else.

I do what I feel makes sense given the conditions that exist, not what the talking heads on CNBC that said "Buy Bear Stearns" a day before it failed entirely and "There's nothing wrong with the economy!" in August 2008 are saying.

Right now, they insist we're fine, it's not a problem, and anyone who thinks we're in a recession now "wants one".

Take them for what they're worth, which is less than nothing.

Most people who get on TV and make investment advice, like Jim Cramer, are so bad at it that (and this has been backtested), you'd make more money by doing the opposite of what they say to do. They put Cramer on because he's a personality, but he's dangerous because he consistently underperforms and loses people a lot of money and has a history of losing money for people who pay him and then lose money.

I think that the best way to lose money in investing is to tune in to Jim Cramer and read everything he says.

I've never seen a year of losses in retirement account investing, even in the Great Recession.

Who are you going to listen to? Me or the guy who recommended a large investment bank that failed less than 24 hours later?

After a bond fund crashed over 30% last year, I started buying up shares of it in our retirement accounts as fast as I could. I sold off S&P 500 ETF shares, and while in the trailing 12 months I've only cleared about 6%+ I feel that stocks are getting too high for where the fundamentals actually are. The S&P 500 has become heavily saturated with tech that is significantly overvalued, and understanding how these "AI" models actually work, and seeing what's really going on (Microsoft layoffs, Intel in emergency mode firing a lot of the company, shutting down R&D, etc.) I wonder how long this can actually be justified.

I feel that the bond ETFs should appreciate in value as prices rise. And should appreciate significantly as things tend to "over-correct". People wait to take their stocks off the table when it's crashed already and if you do that you should just hold, because if you sell them to raise funding to buy bonds you'll buy the bond shares at too high a price and lose again.

Most people should max out their retirement contributions that are sustainable, and at the very least the most their employer will match. You won't get a better deal when you're looking at the tax benefits (especially as a low wage household) and the "free money" from your employer that you let them keep if you don't take it.

Walmart is unusual in that while it's a toxic and **bleep**ty place to work, and the wages are not fantastic, they have a good 401(k) match and the health insurance these days isn't as bad as you would think. The vision plan is terrific.

Many people who work there can take advantage of the low wages with the 401(k) match to get a $1,000 tax credit from the IRS that they never have to pay back. If you make traditional 401(k) contributions, this will even help you get your Adjusted Gross Income low enough.

You can also, and this is odd that a low wage worker would even file Capital Gains tax forms, but if you're smart you'll also buy up the $1,500 of Walmart stock each year. You get a 15% discount on that to the price it was that day. If you hold and sell the shares that are held more than a year, you can turn it around on the IRS again, sell, take the Long Term Capital Gains Rate of 0%, and enjoy what will likely be a more than 15% gain over your cost basis. (Since Walmart shares do really well when consumers are pinched.)

"2. People hoping that by dropping an amount like $100k into one of that bank's offerings, they're garnering favor (aka "building a relationship") for better consideration on some of that bank's other offerings."

If, and only if... you have a lot of financial products with BofA might it make sense to go for the relationship bonuses. It's not worth it just to get more credit card points, but if they also offer you a lower rate on a car loan or mortgage, even if it's only 1/4 or 1/2 of a point, that can really start to add up. Especially if we end up in a serious rate cut environment where taking on loans is cheap again (it's not now) and no bank is paying much on savings anymore. (5.15% guaranteed is hard to pass up.)

"3.  Some just don't care how their money works, so they throw it in a bank they already deal with. It's also an easy option for those who lack financial knowledge and don't really understand how things like compounding work, are susceptible to sales tactics, or are looking for a simple interest number they can understand."

If the bank is doing nothing for you, kick them to the curb and put the money to work.

[KatzNDawgs]

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@ptatohed wrote:

As for bonuses, why not?  I am currently nearing the end of my 90 day hold period for a $100,000 360 CapOne savings where, yeah the rate is only 4.X%APY but, I'll earn about $1000 in interest, plus $1500 in bonus = $2500 on $100,000 invested, for 90 days = 10% APY.  

Also doing a Lending Club HYSA for $50,000 for 90 days for $500 bonus, at a 5%+ APY (which is great, even with no bonus).  

I love HYSAs!!!  (At least in this current savings account high APY climate (won't last forever)).  

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All of the above is about it. If it's an account where interest is not as competitive as other places to store your liquid assets, if the benefit of bonus for time in plus APY during that time is greater than putting elsewhere, then go for it and take out as soon as you are able to based on the TOS according to that bonus deal (that you checked beforehand).

[iced]

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@urbex wrote:

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I can't think of a single reason I would need immediate access to anything more than $1,000 in actual cash anyways.  Some major home repair is either an insurance job, or something that would take long enough to get a cashier's check from the bank on a money market account if it was really needed.  Car has a catastrophic failure?  I get home and take another car, or put it on a credit card and pay it off 3 days later online.  Someone ends up in the ER?  Never in my life have I ever seen an ER that takes cash only, lol. 

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Cash buffers to the tune of $100k can serve as a short-term volatility hedge. Long-term bear markets aren't so avoidable, but also pretty rare. I cashed out some AI stocks earlier this year and kept most of it in money market to finance the rest of my year. Still have a sizeable position to ride long-term, and the sales will mean I won't be in any situation this year where I need to sell more during a short-term pullback or correction.

[IsambardPrince]

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@iced wrote:

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Cash buffers to the tune of $100k can serve as a short-term volatility hedge. Long-term bear markets aren't so avoidable, but also pretty rare. I cashed out some AI stocks earlier this year and kept most of it in money market to finance the rest of my year. Still have a sizeable position to ride long-term, and the sales will mean I won't be in any situation this year where I need to sell more during a short-term pullback or correction.

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The bear market we're about to hit will probably go on for 8-12 months. Not long enough to be horrific, but definitely long enough to cash in my bond shares at higher prices from all the people in stocks panicking and jumping out the window, then I'll just buy up some cheap stock ETFs.

Same strategy. Different year. It worked well before.