From 2022 to 2023, the Federal Reserve raised interest rates 11 times, moving short-term interest rate targets from a low of 0%-0.25% to their current level of 5.25%-5.50%. This change provides an opportunity to evaluate if your cash savings are positioned to take advantage of these rate increases. The approach to choosing the right place to park your savings is not a one-size-fits-all solution. Here is a comparison of cash savings options to help you evaluate which may be best for you:
Brick-and-Mortar Bank Savings Accounts (i.e. banks with physical locations)
Pros:
- Accessibility: Physical branches offer in-person services and support.
- Security: FDIC insurance up to $250,000.
- Personal Relationships: Building rapport with bank staff can enhance service quality.
Cons:
- Lower Interest Rates: Typically offer lower rates compared to online accounts.
- Fees: Possible maintenance fees and minimum balance requirements.
- Limited Hours: Access to services may be restricted to branch operating hours.
Online Savings Accounts
Pros:
- Higher Interest Rates: Generally, offer higher rates due to lower overhead costs.
- Lower Fees: Typically have fewer or lower fees than most brick-and-mortar banks.
- Technology: Often provides more advanced features and tools for a better online experience.
Cons:
- No Physical Branches: Lack of in-person support for those who prefer face-to-face interactions.
- ATM Access: Available ATM networks may be limited, with potential fees for ATM use.
- Technology Dependent: Account access is reliant on internet and mobile service availability.
Money Market Mutual Funds
Pros:
- Potentially Higher Returns: These funds may provide higher returns than traditional bank accounts.
- Diversification: Diversified investment in various short-term, low-risk securities.
- Ease of Access: No restrictions on the number of monthly withdrawals.
Cons:
- Not a Bank Product: FDIC insurance does not cover these funds, and traditional banking services (ie savings and loans) are not offered.
- Market Risk: Although rare, these funds can lose value during periods of extreme market stress.
- Minimum Investment Requirements: Typically, there is a higher minimum deposit than for most bank accounts.
When choosing where to keep your cash savings, consider your financial goals, risk tolerance, and liquidity needs. While not an exhaustive list, balancing the above factors can help you make an informed decision that suits your personal situation. If you have any questions, feel free to contact us. We would be happy to discuss what options may be optimal for your situation.
