August 6, 2018
August 6, 2018
It’s natural to want to get the best bang for our buck. You want the best chance to earn the most money. It’s why people look for hot stock tips. It’s also why people chase yield on a savings account.
When you look at the yield offered by a savings account, it’s painfully obvious that you’re not going to be making bank. If you’re lucky, you’ll see an annual yield of 1%.
The reason cash offers such low returns is due to the fact that it’s considered safe. When you put your money in a savings account, it’s just sitting there. You aren’t looking at capital loss. On top of that, if your bank is FDIC insured (or your credit union has NCUA insurance), the contents of your account are protected, even if the financial institution fails.
When you look for the highest possible yield on cash, you’re not going to find a lot of help. You can look to credit unions and check on line yields, but, for the most part, finding a high yield on cash is difficult.
Should You Move Your Money When You See a Higher Yield?
Even though they won’t see a very high yield, some consumers try to squeeze everything they can out of their savings accounts. That means constantly checking the yields, watching for the Fed to increase rates, and moving their money when a different financial institution offers a better rate.
In some cases, consumers set rules for moving their money. Perhaps they won’t move the money unless they can get at least 0.5% more than they are already getting. Others only move their money if they can get a signing bonus for opening the account. That can provide you with a bit of a boost for the savings account.
But just because you are getting a slightly higher yield, it doesn’t mean it’s worth the trouble. If you are getting 0.97% now, is it really going to make a big difference if you can find a bank that will pay a yield of 1.15%?
Let’s say you put $500 a month into a savings account with an APY of 0.97%. After 20 years, you’ll have just over $133,000. If you can get a yield of 1.15%, your total after 20 years would be right around $135,602. You spent the time chasing yield, and you ended up with just $2,600 more.
To figure out if chasing yield on your savings account is worth it, you need to think about what else you could be doing. How much time do you spend chasing yield? Do you find yourself spending an hour or two a couple times a week? Maybe you just check in every now and then.
But what else do you have to do in order to chase yield? How long does it take to open a new account and arrange to move the money? Are there other arrangement to be made?
What if, instead of chasing yield on your account, and maybe getting an extra couple thousand dollars to show for it after 20 years, you worked on something else? Could you be using your time to clip coupons? Do it right, and you might see an accumulated savings of much more than $2,600 over the course of 20 years.
You could use the time spent chasing yield to start a business or to learn about investing in a way that allows you to earn even more in compound returns. Depending on how you use your time, you could see a big difference in how much money you end up with. Before you get caught up in chasing yield, think about where your time might be most profitably used.