Daily Money - Issue #145: Finally, some good news

June 1, 2022 • Issue #145

Hi y’all —

When I say “the Golden Age,” what comes to mind?

Do you think of Hollywood’s Golden Age, when stars like Clark Gable ruled the silver screen? The Boy Band Golden Age, when you couldn’t turn on the radio without hearing *NSYNC or the Backstreet Boys? Or do you — like me — recall the recent Golden Age of Online Savings Accounts, the period a few years ago that saw interest rates near 2%?

It was a wild time. Online banks were in an unofficial competition to see who could offer savers the highest annual percentage yield, or APY. To attract customers, institutions like Marcus and Ally tried to one-up each other, going higher and higher with APYs they were able to afford because they didn't have to pay the overhead costs associated with brick-and-mortar locations.

Then the Fed cut rates in 2019, the pandemic hit in 2020, and everything fell apart. I got used to depressing "sorry-we're-dropping-your-APY" alerts from Ally. The Golden Age seemed dead and gone…

…until lately. Last month, Ally sent out an email announcing it was raising the APY on its high-yield savings accounts from 0.5% to 0.6% for all balance tiers. This was the first time its APY has changed since December 2020 — and the first time it has increased since January 2019.

And then it happened again last week.

I was surprised, so I decided to investigate. What’s happening with high-yield savings rates? How should I react?

Ally’s Thursday email named “recent market trends” as the cause of its rate increase to 0.75%. But what they were really referencing were moves by the Federal Reserve, which is on a mission to tamp down record-high inflation.

The Fed is attempting to cool down the economy by raising the target federal funds rate, or the rate at which banks lend each other money. Rate hikes make borrowing more expensive, which typically leads banks to increase their interest rates for savers. That’s what I’m seeing now.

It’s not just Ally, either. Marcus by Goldman Sachs increased the APY for its online savings accounts on April 22, bumping its rate up from 0.5% to 0.6% in the first hike since January 2019. It increased yet again on May 18 to 0.7%.

This is a welcome development after the turbulence of the past few years, which led banks to slash their savings rates as fiscal conditions worsened. And although the process is slow and unpredictable, it’s likely only uphill from here, says Andrew Westlin, a certified financial planner who works with Betterment.

“Who knows what will play out, but if rates do continue to go up, those who have high-yield savings accounts should expect rates on where you're keeping your cash to go up,” he adds. The higher the APY, the more happy emails I get from Ally, the more I earn in interest.

Great news. But what do I do about it? 

Well, Westlin says, this is a great opportunity to review my saving and investing strategies. Even though rates are rising, I should make sure the places I’m choosing to put my money are serving me well. 

Westlin advises me to consider flexibility, risk level and time horizon. Say the big goal I’m working toward is buying a house in the near future. I should ask myself: If I invest my money now and happen to lose some of it, can I delay the purchase? Can I buy a cheaper home? Can I look in a more affordable area? 

If the answer to any of those questions is yes, I might want to invest (at least some of) my money. If the answer is no, I might want to stick with a high-yield savings account.

That’s especially true if I’m on a tight schedule. “We recommend if you have something you're saving for that's less than a year away, just stay in cash with that money to avoid potential stock market volatility and drop in balance,” Westlin says.

It’s important to realize, though, that parking thousands of dollars in a random bank account isn’t riskless, either. Sure, interest rates are going up, but given inflation estimates I still could be losing purchasing power, Westlin says. Also, if I’m keeping my savings in a checking account — where the national average rate is a paltry 0.03% — that’s a mistake.

Westlin recommends I shop around for a high-yield savings account, looking at various online banks’ advertised APYs and finding one that works for me. I’ll want to make sure that the institution is insured by the FDIC. And I should check into perks, like whether the bank has a bucket system that allows me to group my savings by goal, thus making it more likely I’ll achieve them.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

While high-yield savings rates are still a far cry from the Golden Age of 2018/2019, they are seeing a turnaround from recent lows. This rebound is largely a ripple effect linked to the Federal Reserve, which is hiking rates as it tries to remedy inflation.

With more increases almost certainly on the way, my savings will “work a little bit harder,” Westlin says. But I still need to have an investing plan in place if I want to achieve my goals.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

A new biography of Vogue editor-in-chief Anna Wintour recently dropped, and with it a bombshell: The 72-year-old fashionista’s lunch of choice is a steak caprese salad (sans tomatoes). Oh, and it costs $77. Paying way too much? For a sad desk lunch? Groundbreaking.

INTERNET GOLD

five things I'm loving online right now

1	In 1991, Cher was supposed to meet up with her idol, movie star Audrey Hepburn, but got sick. This is the letter she wrote. I especially love this quote: “There is no better argument for being an individual than you, being you, living your life as you do on screen.” The cool part? The feelings were mutual.
2	This New York Times trend story about the meteoric rise of the Adventure Quencher Travel Tumbler, which has a cult following among social media-savvy women, is fascinating. Also, now I want one.
3	“He finally got out.”
4	No thoughts, head empty, just thinking about this kitten gnawing on an avocado.
5	Cleaning for summer? Use this list of tips to make sure the books you’re donating are actually usable. Book Riot says to avoid offloading old textbooks (too out of date), moldy books (too gross) and inappropriate material (too problematic).

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA ALEX SCHUTZ

Meet Theo, a Bernese mountain dog. Theo is pleased to hear that his APY, Attention Per Yelp, has risen.

See you next week.
 

 
P.S. Have you heard from your online bank lately? What’s your best guac recipe? Do you prefer NSYNC or the Backstreet Boys? Reach me at julia.glum@money.com or @SuperJulia on Twitter.

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