Money Movement: Increasing Number of Savings Account Transfers from Large Banks to Smaller Institutes
In a bid to combat the effects of inflation and secure their financial future, Americans are increasingly moving their savings into higher-yield accounts. This shift, driven by a desire for better returns and a growing awareness of the erosion of purchasing power, is reshaping the financial landscape.
Money market accounts and Certificates of Deposits (CDs) are delivering returns north of 4% in some cases, while many banks still offer low yields of 0.01% to 0.10% on standard savings. Households earning less than $35,000 per year saw total cash balances grow at an average annual rate of 5% to 6%, according to the JPMorgan Chase Institute's latest Household Finance Pulse.
After years of financial uncertainty, Americans are becoming more intentional with how they manage money, with the help of budgeting apps, online financial tools, and social media education. This newfound financial savviness is leading to a re-evaluation of where cash is kept, with many moving away from traditional checking and savings accounts.
Money market funds, offering both liquidity and competitive yields, are increasingly popular for storing emergency savings and short-term cash. High-yield savings accounts (HYSAs), offered by online banks, provide rates upward of 4%, significantly higher than most brick-and-mortar institutions.
Investment-based accounts such as brokerage accounts or money market mutual funds are not FDIC insured, which means you could lose money during a market downturn. However, they offer access to Exchange-Traded Funds (ETFs), dividend stocks, and bonds, providing a path to longer-term investment income but with market risk.
Certificates of deposit (CDs) are safe and predictable, but early withdrawal can incur penalties if funds are needed before the CD's maturity date. On the other hand, brokerage accounts can deliver higher returns but expose the investor to market risk and price volatility.
Private equity and real estate investments offer the highest return potential but come with long lock-up periods and significantly higher risk, including loss of principal. These options are suitable for long-term investors willing to accept high risk.
In summary, for higher yields with low risk and good liquidity, money market funds and high-yield savings accounts are popular choices. For higher returns with increased risk and lower liquidity, allocations to brokerage-based dividend stocks or private equity real estate are options investors consider. The selection depends on individual tolerance for risk, liquidity needs, and investment horizon.
Shifting savings into investment or high-yield accounts can significantly improve earning potential. It is possible to explore and compare some of today's best savings options with a tool powered by Bankrate.
Persistent inflation has led many consumers to question whether their money is truly "safe" if it's losing value over time, leading them to move cash into investment income accounts to preserve and potentially grow their purchasing power in the future. The Federal Reserve's rate hikes have made it more attractive to move money out of traditional savings and checking accounts.
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[2] NerdWallet. (2022). Best Money Market Accounts. [Online]. Available: https://www.nerdwallet.com/banking/money-market-accounts
[3] CrowdStreet. (2022). Real Estate Crowdfunding Investments. [Online]. Available: https://www.crowdstreet.com/
[4] Investopedia. (2022). High-Yield Savings Account. [Online]. Available: https://www.investopedia.com/terms/h/highyieldsavingsaccount.asp
[5] The Balance. (2022). How to Choose the Best Brokerage Account. [Online]. Available: https://www.thebalance.com/choosing-the-best-brokerage-account-315941
- To combat inflation and secure their personal-finance, many Americans are exploring high-yield savings accounts (HYSAs) and money market funds, as they offer higher returns with low risk and good liquidity.
- As personal-finance becomes a priority, investors are considering various options like brokerage accounts, private equity, and real estate investments, each offering different returns and risks, depending on their tolerance for risk, liquidity needs, and investment horizon.
