Cash in: Remain diligent about where to park those checking and savings balances

One of the simplest yet overlooked ways consumers can stretch their dollar in today’s economic environment is by taking advantage of high-yield savings accounts and other similar banking products. In a world of higher interest rates, consumers should be diligent about where they park their checking and savings balances.

As interest rates were aggressively hiked by the Federal Reserve System starting in 2022 in an effort to combat inflation and slow the economy, many banks and financial groups have offered consumers a benefit to holding more in cash. Traditional banks have been reluctant to offer their customers higher rates. Consumers who are comfortable moving cash to an online-only banking institution without a brick-and-mortar presence have been rewarded with rates yielding over 4% annually. Similarly, products like short-term certificates of deposit and treasury bills have offered individuals a safe haven to lock up cash for a period of time and get paid for cash not needed immediately.

Some important considerations when deciding which bank to park your savings in are the ease of use and deposit insurance.

For many of the older generations, a traditional brick-and-mortar bank was the stalwart for banking. Being able to physically go to the bank to execute weekly tasks such as check deposit, withdrawals and transfers was a key consideration.

However, the younger generations have adopted a different approach as they’ve been accustomed to using technology for their everyday banking needs. Online banking use has exploded over the past 10 years, a trend that many traditional banks have also adopted.

Admittedly, the traditional brick-and-mortar banks have been slower to raise the interest they offer to customers on their deposits. In contrast, the online-only banks have boasted higher yielding accounts in an effort to coax both generations away from traditional banking. If you are comfortable giving up those brick-and-mortar buildings and to use online banking, you may be rewarded with a higher yield on your deposits.

The other key consideration is deposit insurance. This is insurance offered by two federal agencies that cover a vast amount of the state and federally licensed banks and credit unions across the country. Government agencies like the Federal Insurance Corp and National Credit Union Administration have set up an insurance program for consumer deposits into different bank/credit union accounts. The limits on the insured amount can be tricky to discern, as they are dependent on how the bank/credit union account is registered as well as the type of account. The rule of thumb is that the deposit insurance covers $250,000 per depositor, per bank and per ownership category.

For example, a single individual with a savings account titled individually in their name would be entitled to $250,000 of insurance at that bank with that account. Whereas a joint bank account owned by two individuals would have $500,000 worth of deposit insurance, $250,000 per depositor. Deposit insurance is an important consideration in the event of a bank failure. Recently, in 2022 we saw many mid-level and local banks enduring pressure from a rising rate environment, which threatened their daily operations. The best example was Silicon Valley Bank in California.

As the interest rate environment changes over the coming years, the Federal Reserve has stayed steadfast in their stance that interest rates will be higher for longer. In the wake of that, consumers should stay diligent about which bank or credit union they decide to give their hard-earned deposits to. Many could be leaving cash on the table.

Tyler Eckert is a Certified Financial Planner professional and a member of the Financial Planning Association of Greater Kansas City. He is the lead trader with FAS Wealth Partners in Leawood.

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