The past 50 years of market data show that the average one-year S&P 500 index return after the above-average peak inflation is 17% and the average three-year S&P 500 index accumulative return after the above-average peak inflation is 46%. Investors need to remember that the amount allocated to the high-yield savings accounts also comes with an “opportunity cost,” says Jiayi (Kristy) Xu, a CFP and founder of Global Wealth Harbor. While rates approaching 5% on high-yield savings accounts are a welcome increase, the vast majority of financial professionals Fortune spoke with did not recommend investors completely stop contributing to their various investing accounts in favor of high-yield savings.
Remember there’s an “opportunity cost” to high-yield savings “If everything else in their financial profile is where it needs to be and the cash is truly idle, it makes sense to move it to a higher yielding account type, including money-market, short-term CDs, and short-term Treasuries,” Shafer adds. If that’s attractive, then Rau would recommend Americans drive more to a high-yield savings than other post-tax investments-but, again, only if their other goals are taken care of first. High-yield savings provides a great risk-free way to allow your cash to grow right now. If you are on track to reach your goals, then it depends, Rau says. The old saying goes, buy low and sell high, so why miss out on getting into the market now when everything is on sale?” “If they’re short on retirement savings, then no way would I tell them to reduce their savings in investments for a high-yield savings account. “The first thing I do is determine whether they’re already saving enough in the right places,” says Crystal Rau, a CFP and founder of Texas-based Beyond Balanced Financial Planning. But before you move your money around, first take a holistic approach and look at not only where and how you’re investing-but what the goals are for that money long term, financial planners recommend.Ĭonsider: Do you have enough saved in your emergency fund? Are you on track to reach your short-term savings goals? What’s your outlook on your retirement savings? Now may also be a good time to consider where you’re allocating your extra cash. Consider the best ways to rejigger your contributionsĪ lot of investors set up automatic withdrawals from their paycheck to their 401(k), or from their checking account to savings, brokerage, or Roth IRA accounts. It’s a helpful strategy, but it can mean that it needs adjusting from time to time, like when you get a raise. Some accounts have minimum deposit requirements to earn the maximum APY, for example. Just make sure that you’re looking at all the terms and conditions of the account and rates.
“This is especially important for emergency funds set aside for potentially important causes such as job loss or a large unexpected financial expense.” “Taking advantage of higher-yielding, insured savings accounts is a great way to maximize the power of compounding for ALL of your funds, not just stocks and bonds,” says Mike Silane, a chartered financial analyst (CFA) and founder of California-based 21 West Wealth Management. Especially when you consider that inflation is up 6% year over year. If you’ve got an emergency savings stash sitting in a low-interest account, it’s practically a no-brainer to find a new home for that cash to earn a better rate. That raises the question-should you change up your investing and savings game plan? The short answer from financial professionals: It depends. In other words, you might earn more on your savings account right now than your investments. The challenge for stocks right now is that because of extended market volatility, cash yields are competitive, says Dale Shafer, a certified financial planner (CFP) and founder of Arizona-based Life Moves Wealth Management. More than $460 billion has been flowing into money-market funds, for example, since last March, when the Fed began raising rates. With interest rates so high, there is a lot of money flowing to high-yield accounts-especially as market benchmarks like the S&P 500 have delivered only about 3.5% returns year to date. It’s far from the only game in town Ally Bank offers 4% on its money-market accounts, while Citizens offers 4.25% APY on its savings account. Betterment, for example, hiked interest on its cash reserve account to 4.2% APY this week.
Thanks to the Federal Reserve opting to continue rate hikes, the average interest on savings accounts and money-market accounts, as well as CD rates, are generating big returns.
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