Why Do You Still Rely on the Bank?
I have noticed a lot of people still use a bank for saving money. The concept is so common, they look at me like something is wrong with me when I tell them there is better way. Banks have separate accounts for various needs. If you need to store your money in one spot while you think about the various ways you might spend it, you use a checking account upon which you are unlikely to generate any return on your cash. If the spending plans are long term, they will direct you to a savings account. If you have a sizable chunk of cash in the savings account, they begin to speak of buying a CD (certificate of deposit) or using their super premium offering, a “money market account”. In order of interest rate, the basic savings account is likely to provide a 0.54% rate for your hard-earned deposits (Bankrate.com national average as of 1/23/25) while money market accounts may achieve a similar rate to CDs in the range of 4.3% to 4.65% (also from Bankrate.com as of 1/23/25). These higher rates are attractive, but beware! There are conditions attached. Most of these offers are assumed to fade over time as interest rates have been expected to fall for months now. Therefore, banks offer introductory rates or large required deposits and limit the amount or number of withdrawals on such accounts.
My recommendation is to go to one of the custodians who can facilitate trading in bonds and stocks and buy bonds or a money market fund with your cash assets. You may be thinking, hey you just said beware of the conditions in money market accounts, and you would be right. Bank money markets are tricky while a custodian account doesn’t limit your transactions or charge you penalties if you want to sell your CD (tradable CDs are also available through custodians.
Custodians seem to allow more liquidity (access to your funds) with less restrictions and lower costs AND many more options for investment. For this reason, I recommend individuals open a brokerage account. At Dye West Wealth Advisors LLC, we partner with Schwab and can manage your cash right along with your other long-term financial assets (stocks and bonds). This gives you the ability to use cash to buy short-term Treasury bills, notes or bonds as you wish along with corporate bonds, municipal bonds or stocks. While I do not advocate getting to active with your bond portfolio, a brokerage account will allow you to access and manage your cash with a higher average return than a regular bank. One word of caution though, you can’t just ignore your account and assume you are getting the best deal at Schwab either. When your assets (bonds or CDs) mature, they are automatically swept into Schwab Bank where they are treated like the lower earning bank assets outside of your brokerage account.
You should also know, most brokerage accounts come with checking features. This would allow you to keep your normal bank checking, write a check from your brokerage once in a while, manage your transactions through the traditional banking account and manage other cash assets at the brokerage to maximize interest income.
If you find this difficult to understand, give me a call for clarity at (770)833-5928 or open an account with Due West Wealth Advisors LLC and let me manage your assets (including cash) for you.