Banks have been very slow to increase interest on savings accounts. Many large banks still have the nerve to pay no interest. A quick check shows that in my zip code, BoA, PNC, and Wells Fargo each pay 0.01% to 0.03% interest on their basic savings accounts. If you jump through hoops by having a checking account with them and meeting account minimums, hopefully avoiding the $5-$12 account service fee, they pay a whopping 0.06%, 0.10%, and 0.32% interest, respectively. Even bank money market savings accounts pay very little interest, at 0.03% with PNC Bank. Unless you're with an online bank like Ally, a credit union, or another bank that is particularly aggressive about their savings account interest rate, you're probably getting ripped off.
Vanguard's prime money market fund pays 1.74% interest currently with no account service fee, although given, it does require a minimum of $3000 to start. But if you already have investments with vanguard or another mutual fund company, it's a no brainier to use their money market fund as your savings account rather than your bank savings account. I keep a $100 cash buffer in my checking account, credit cards for emergencies, and then my savings are in Vanguard's prime money market fund beside my taxable investment and retirement accounts.
I just wanted to point this out since it feels like increasing mutual fund money market rates have flown under the radar. It's kind of upsetting to me because I feel like people are getting robbed. Meanwhile, mutual fund money market accounts could be paying 2.5% interest by year end, with essentially no risk to principal.
On another note, does this change anyone's investment strategy? I'm thinking that retail investors, seeing saving account rates go up alongside increasing market volatility, may reallocate more into cash, pushing markets down further.
Submitted April 09, 2018 at 12:40PM by CaezarVII https://ift.tt/2qjknvW
