Heightened Interest

Andrew Forsythe

I TEND TO KEEP MORE cash than the average investor, so the recent rise in interest rates paid on savings has my attention. In fact, 2022’s pitiful performance by bonds has caused me to shift even more money into cash.

We have online savings accounts at CIT Bank, Synchrony, Marcus and American Express. CIT is currently paying 3.25%, Synchrony 3%, Marcus 3% and American Express 2.75%. The rates have climbed so frequently this year that they’ll probably be higher by the time you read this.

We also have cash stashed in Charles Schwab’s Value Advantage Fund (symbol: SWVXX) and Vanguard Group’s Cash Reserves Federal Money Market Fund (VMRXX). The Schwab fund pays 3.7% and the Vanguard fund 3.6%. These being money market mutual funds, rather than money market bank accounts, they don’t enjoy FDIC insurance protection. They also don’t guarantee a constant $1 share price, though instances of “breaking the buck” are extraordinarily rare.

I recently read of an online bank offering as high as 3.6%, but I’m sticking with my current lineup for now. I try to weigh the hassle and bookkeeping cost of a new account against the benefit of a slightly higher interest rate.

It takes a little doing, but once you get your accounts set up and linked to one another, it’s simple to transfer money back and forth as one bank or another raises its rates. I don’t go to the trouble of a transfer just to obtain a modestly higher rate. But with the recent frequent and significant increases, there’s often been enough of a difference to make it worthwhile.

Occasionally, a bank will pay extra to keep you from moving money out. Not long ago, I let a bank know of my intentions to shift my money and asked if it had any type of retention bonus to induce me to stay put. The bank did, which naturally it never advertises, and I got a modest bump in rates just for asking.

There can be other small incentives to look out for. Marcus Bank adds 0.1 percentage point to the interest rate if you’re an AARP member, raising its current rate to 3.1%. A while back, it offered a 0.5-percentage-point bump for three months to both you and the new customer, if you made a referral. Marcus even gave it to me for referring my wife.

In the past, we’ve also bought no-penalty certificates of deposit, which allow for early withdrawals without a loss of interest and often pay the highest rates of all. The downside is that every time the bank increases rates, you have to cash out the old CD to buy a new one. Banks typically don’t notify you that higher rates are available, so you need to check periodically. To cash out a CD early and swap to a new one usually requires a phone call.

This brings up a downside to online banking: There can sometimes be long wait times to get a human being on the phone. This has been exacerbated by the recent substantial rate increases, as people clamor to open accounts.

My suggestion: Before opening a new online account, call the customer service number and see how long it takes to get through. A fraction of a percentage point more on the rate isn’t worth growing old on hold.

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