Over the past year, fixed-income investors have been paid quite well to keep their money in cash, with money-market funds yielding 5% or more. Money market funds generally offer investors high liquidity with a low level of risk. Also, holding cash has been a sensible strategy for equity investors who perceive limited opportunities in the stock market at elevated levels.
Mark Landecker, co-manager of FPA Crescent Fund FPAX, which invests in stocks and bonds, told TheStreet.com that 5% interest rates give him and his colleagues confidence in keeping money in cash while they await attractive stock valuations.
However, recent economic indicators suggest this trend may soon reverse. With easing inflation and slowing job gains, the Federal Reserve is anticipated to cut interest rates, which could reduce the attractiveness of money-market funds. From March 2022 to July 2023, the Fed lifted interest rates by 5.25 percentage points.
According to the CME FedWatch Tool, a measure of market sentiment, the chance of an interest rate cut in September stands at more than 86%. Each reduction would be 25 basis points for the federal funds rate target, currently 5.25%-5.5%. Moreover, interest-rate futures indicate a strong probability of two more rate cuts before year-end.
A 50-basis point cut in the Fed’s federal funds rate would likely result in a similar decrease in money-market rates, ultimately bringing them down to approximately 4.5%. As interest rates are likely to drop, investors must consider alternative options to maintain high returns. High-yield savings accounts (HYSAs) are an excellent option for those seeking better yields while maintaining security and flexibility.
Understanding High-Yield Savings Accounts
High-yield savings accounts (HYSAs) are savings accounts offered by banks and credit unions that provide higher interest rates than traditional savings accounts. For instance, the interest rates on HYSAs can be up to 10 to 12 times higher than traditional savings account returns. These accounts aim to attract deposits by offering significantly better returns, allowing customers to grow their savings more quickly.
HYSAs typically offer higher annual percentage yields (APYs) than standard savings accounts. APY accounts for compound interest, meaning you earn interest on your initial deposit, and the interest accumulates over time. The more often the interest compounds, the greater the potential earnings. Current APYs for leading HYSAs can range from 3% to 4.5%, offering a compelling alternative for investors seeking better returns without sacrificing security.
Like traditional savings accounts, HYSAs are insured up to at least $250,000 per depositor, per Federal Deposit Insurance Corporation (FDIC)-insured bank, ensuring the safety of your funds. Also, HYSAs provide easy access to your funds, typically allowing withdrawals and transfers without penalty. This liquidity makes them a convenient option for short-term savings and emergency funds.
Leading HYSAs From Goldman Sachs and JPMorgan Chase
Several financial institutions offer competitive high-yield savings accounts, including notable options from Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM).
Marcus by Goldman Sachs
Marcus by Goldman Sachs® offers a high-yield savings account with an APY of approximately 4.4%, which is much higher than the national average savings rate of 0.50%. A Marcus high-yield savings account has no minimum deposit, no monthly fees, and the ability to link external bank accounts for easy fund transfers.
Notably, Marcus online savings account has been named #1 in customer satisfaction in the J.D. Power 2024 U.S. Direct Banking Satisfaction Study. It received top ratings from customers in several key categories, including trust in keeping their savings safe and secure, effectiveness in growing their money, ease of transferring funds in and out, and the user-friendliness of managing the account via the mobile app and website.
Chase Savings
While Chase Savings℠ account offers an APY of around 0.01%-0.02%, which is lower than the national average, Chase does provide higher-yield options through promotional rates and its Premier Savings account, which can offer competitive rates under certain conditions.
Chase accounts come with extensive branch and ATM networks, providing easy access to funds and robust customer service. You can make purchases with your debit card and manage your banking from nearly anywhere using your phone, tablet, or computer. You can also access over 15,000 ATMs and more than 4,700 branches.
Bottom Line
As the Federal Reserve moves toward lowering interest rates, the yields on money-market funds are expected to decline. High-yield savings accounts present a viable alternative for investors by offering higher interest rates than traditional savings accounts, along with the added benefits of FDIC insurance and easy access to funds.
Financial institutions like Marcus by Goldman Sachs and JPMorgan Chase offer competitive high-yield savings options to help investors navigate a changing interest rate environment effectively. By considering these alternatives, investors can make informed decisions to maximize their returns and maintain financial flexibility.
