Explore High-yield Savings Accounts with Maurice L. Wilson

The Wealth Equation Podcast by Maurice L. Wilson reveals how to accelerate your wealth and secure more money, time, and freedom by leveraging the investment powers of real estate, entrepreneurship, the stock market, and more. Tune in as host Maurice L. Wilson, an engineer turned financial advisor, offers you a step-by-step formula to solve your wealth equation once and for all. Here's Maurice.

Hello and welcome back to The Wealth Equation with Maurice Wilson. It has been a while since I posted. I do apologize. I've made this promise before, but I am going to do better. If this is your first time coming to the show, my name is Maurice L. Wilson, founder of Wilson Wealth Management Group. And this is my personal podcast. I do have a company podcast that we do called the Wilson Wealth Show. You can find that at www.wilsonwealth.com.

It's listed on our home website. If you're a longtime listener, welcome back. Hope you're enjoying the beginning of the spring. This is a tax day, 2024. I get a lot of my show ideas sometimes from clients and friends ends of the show. And one of my clients slash friends recommended that I talk about high yield savings accounts and the best high yield savings account. Now, we aren't allowed to use terminologies such as best in my line of work.

It connotes a guarantee or advice. So I'm going to stay away from the word best, but I will talk about high yield savings accounts, where to find them, what what they are, how they compare to CDs, and where to get them. So let's start off with what a high-yield savings account is. And essentially, a high-yield savings account is where the bank takes your money and puts it in different vehicles that are going to kick off a higher rate of return that they can then pass on to the client.

Typically, these are in other fixed return vehicles that the bank has their fingers in. Right now, these high yield savings accounts are paying a lot higher than your traditional savings accounts. And I would say the majority of Americans are in traditional savings accounts, which are just, you open up an account, you open up a checking and a savings, and most people have their money that's not being spent every month parked in the savings account.

The problem is that money on average is earning less than half of one percent, while the high yield savings accounts are averaging between four point five to five point three five percent. So what does that mean? Every thousand dollars in a high yield savings account is paying four to five dollars, which if you multiply that by 50 or 100, you're getting 2000 to 2500 or even 2500 to 5000 dollars a year in free money. money.

So when you start to get up to those levels, you're talking about enough money to maybe help out with a car payment, mortgage, pay down debt, things of that nature. So it does behoove you to look at these high yield savings accounts. Now, why are the banks paying so much money on the savings accounts? What's going on? Because rates haven't been this high for long. And what happened was in 2022, our central bank, which the way the bank banking system works, there's a federal reserve.

It's called the Central Bank and they have all these regional federal reserves. And so they got together and said, hey, the gauges that they use to measure inflation had shot up. We want to keep inflation around three percent. At the time, it had gotten as high as nine, roughly nine percent. So the Federal Reserve's job as our central bank is to get inflation under control.

And one of the ways they do that is to raise the cost of money, i.e. The interest rates that credit cards charge, mortgage lenders, student lenders, any type of lending, the rate that's charged on those loans are interest rates. So if the Fed can raise the key borrowing rate to a certain amount, it will reduce the demand for goods and services. So when we got our house, interest rates were near zero. And so we got our house for under, I think, 5% on our loan.

Car loans were, again, under 5%. That's a lot different today where rates are averaging 7% and higher. So two things are going to happen when you raise that rate. You're going to buy less home and you're going to think more about buying a home. When we were buying a home, we just, it was nothing to buy a home. You could get a great loan. The payments weren't that high. So you've got a lot more house. Well, when you get a lot more house, you're going to put a lot more stuff in it.

So we go down the target, go down to your furniture stores and use the target credit card or get the in-store financing at the furniture store. Again, low interest rates for all of those. So we're going to buy more stuff. Well, as you buy more stuff, it increases the cost of goods because the person selling the stuff is going to raise rates, make sure that they are profitable, supply and demand as you were.

So when interest rates or excuse me, when inflation got above the key range for our central bank, they got together in 2022 and started raising rates and kept raising them. And so likewise, the bank has to start paying out more. On their savings because other banks are paying out more. So they get competitive there. So savers start to win in those high interest rates environments. So we are in the aftermath here of that particular period in economic history.

Inflation is not quite under control, but it's a lot better than what it was, but it remains elevated and somewhat sticky. icky. So we think these rates are going to be higher for longer, which means that instead of having your money earning less than half of 1% in a traditional account, you want to look for these high yield savings accounts that are paying 4.5% to 5%. So where do you get these? A lot of people, a lot of my clients are reluctant to open up new banking accounts, accounts.

And I don't blame them. It's tough enough keeping up with that one password that you do have. Now you got to go and go online and look for other banks that are paying higher rates. Well, turns out you don't necessarily have to leave your current bank.

I would recommend, I think we can do that. Everybody start with your current bank. See what they have to offer. I was telling one of my clients this, just go in and say, hey, I've got so much in savings. What can you do for me? Just start there. And it's the bank's job to keep you as a customer. They want your deposits to stay there. So they'll reach back and find out what they can offer you based on your service or history with the bank.

A lot of people have multiple relationships with the bank, credit cards, car loans, mortgage loans. And so they have certain privileges and things they can do for you. But let's say your bank isn't good enough. You could go and indeed start with an online bank. There are several options where you can get with online banks. One place that has those options where you can look them all up in one place is bankrate.com.

Bankrate.com is one of these sites that came of age in the 90s when the dot-com boom got going and a lot of personal finance gurus were out there. And so Bankrate.com would aggregate all of this banking information and allow you to find great savings rates. Back in the 90s and early 2000s, or really mid-2000s, interest rates were about where they are now. You could get 4% and 5% from the bank. So Bankrate.com made their name in that

era. that I would submit a place that people haven't considered. It doesn't come up a lot, but your broker. And by broker, I mean the place where you invest your money. Some of you may be at Schwab. Some of you may be at Vanguard. Some of you may be at Vanguard. Bank of America, Merrill Lynch, Fidelity. These are brokerage firms where you may have an IRA, rollover IRA, or just a regular joint account, investment account, what have you.

The brokers are really starting to step up here and three have come across my screen. Now, I'm not recommending any of these and there is a conflict of interest with the last two names I'm going to give you, but let's start with something that people may not have considered, but they may have money there, and that is Vanguard. Vanguard right now is paying 4.7% on their cash. There are a lot of people who have Vanguard investment funds with their 401k.

You may want to also look at expanding that relationship and taking advantage of this 4.7%. The advantage going with your broker is that it's an existing relationship for a lot of people, right? So I've got my bank here. I don't want want to change my bank. I may have a credit union as well. I don't want to get a new credit union.

And you also have an existing relationship with the broker. Well, now that broker can step in and give you some high returns on your cash as well. Another broker to consider is interactive brokers. Now, here's the first conflict of interest. We do a lot of business with interactive brokers. We are not compensated to tell you about interactive brokers, but we do have client accounts with interactive brokers.

That being said, interactive brokers is paying 4.83% right now, a tad higher than Vanguard on their cash. So that's something to consider. Interactive brokers is one of the number one brokers in the country, but a lot of people don't know about it because of who they cater to. But it's something to consider if you're looking, if you don't have an account there, you don't have a brokerage account somewhere else. Here's a place where you can park some cash and get paid to wait 4.83%.

Finally, there's a company that I know a lot of you have not heard of Altruist, A-L-T-R-U-I-S-T. They are a newcomer to the world of finance. We actually have client accounts there and they just announced 5.1% on their cash through an account called an Altruist cash account. And so Altruist is really competitive there. You're getting, you know, over 5%.

Now, why the brokerages? So the thing is, as we fight inflation by raising these rates, at some point, we are going to have to start lowering rates to stimulate the economy. Typically, what happens is the economy gets overheated. We have inflation. The Federal Reserve steps in and fights inflation. That usually resolves itself with a mild to not so mild recession. recession, that creates buying opportunities in the stock market.

Now you've got your cash in these high yield savings accounts in a place where you can easily begin investing as well. The way a lot of these accounts are set up, you can buy stocks inside of the high yield savings account.

So you're getting paid the weight. And then if the economy slips into a recession or simply if there's a buying opportunity, you can easily move your money that was earning a a high rate of return to some hopefully good opportunities to buy low in the stock market. And that's really the name of the game. If we're talking wealth and the wealth equation, you're not going to get wealthy in high yield savings accounts.

You're going to get a decent return on your money, but you aren't going to get enough return to create wealth unless you are already wealthy. And by that, I mean roughly $10 million, right? You got $10 million earning 5% a year, you're earning $500,000 a year. Now, that may not be most people's definition of wealthy, but if you can make half a million dollars a year and not take any risk in the stock market, you're doing pretty good. If that's not wealthy, it's pretty close.

So these interest rates, these high-yield savings accounts aren't necessarily designed to make you wealthy. They're designed to preserve wealth. But if you get a high-yield savings account. At a brokerage firm, you're one step closer to being able to invest in the market when a great opportunity arises. And what does that look like? Today, Tesla announced a 10% layoff. I'm not saying buy Tesla, but Tesla is struggling right now. That might be a buying opportunity.

Nike is struggling right now with their product lineup. That might be a buying opportunity. The same thing with Apple. Anytime a stock begins to struggle, you may have an opportunity to buy it for a lower a price than before they were struggling. So as the economy tries to resolve where it's going, are we bouncing out of inflation or are we going to have to raise rates and possibly slide into a recession?

Having money positioned in a high yield savings account at a brokerage firm where you can easily, with the click of a mouse, buy stocks might make sense when you're considering things like Like, where do I find the quote-unquote best high-yield savings account?

One thing I wanted to touch on before I go is CDs or certificates of deposits versus high-yield savings accounts. What's the difference? So a CD typically is less flexible. You typically commit your money to a bank for a minimum of three months to get a guaranteed rate of return. term. So these CDs, as they're commonly known, have maturities of three months, six months, 12 months, sometimes five years.

Well, when somebody puts their money in a CD, even though they can pull their money out anytime, there's a penalty for doing so. It's not that bad. You just pay the last month's interest usually. People kind of view that money is less flexible because it's in a kind of, you know, contract with the bank. Versus that high yield savings account, which is very flexible. There's no penalty for taking your money out.

There's nothing to undo. It's just sitting there collecting interest at a higher rate than you otherwise were getting in a traditional savings account. That trade-off in flexibility is the difference, right? And so why would somebody get something that's less flexible? That's a good question. You would get the CD if you believe that the interest rates were going to start to decrease, i.e. the bank was going to start paying you less money on your cash.

Well, then what you would want to do is lock in some of that guaranteed money at a longer maturity. So let's say you believe believe in a year from now that the banks are only going to be paying three percent versus five percent. Well, you may want to go out and get a one year or longer CD paying 5% and now you're winning, right?

So that's where you want to look at a CD. But if you're in a, you know, a rising rate environment or an area where the Fed is not looking to cut rates, high yield savings accounts might make a lot of sense, particularly if you're trying to position your money to quickly rotate in the stock market to take advantage of an opportunity.

All right. Once again, my name is Maurice L. Wilson. You can find out more about me on LinkedIn at our firm's website, www.wilsonwealth.com. If you have any questions, call me at 704-327-3189 or email me at maurice at wilsonwealth.com. Thank you for spending time with me today. Talk to you soon. It is a pleasure to have you join us for this episode of The Wealth Equation. Be sure to visit wilsonwealth.com for more information about building wealth.

We look forward to helping you next time on The Wealth Equation. Music.