piggy bank

By Joel Dresang

We let too much cash build up in our checking account, and it was costing us money.

Like junk in the basement, our cash accumulated by a combination of thrift and not thinking about where else to stash it.

It cost us because our credit union pays 0.01% on the balance. That’s an annual yield. In comparison, the yearly inflation rate was 6.4% in January, as measured by the Consumer Price Index.

Part of that gap is just the price we pay for convenience and safety — easy access to our cash in a federally insured account. Of course, we still need money in checking to pay bills. But we didn’t need as much there as we had. So the questions became 1) How much do we need? and 2) Where do we put the rest?

We’re not alone in this pickle.

Analysis by The Wall Street Journal found that customers at the nation’s five largest banks — holding about half of all U.S. bank deposits — missed out on $42 billion in interest in the third quarter of 2022. That’s because, unlike many other institutions, the five biggest banks didn’t raise yields amid historic rate boosts by the Federal Reserve.

With rates rising again at the end of 2022, The Journal said, depositors at the biggest banks lost out on even more in the fourth quarter, on top of an estimated $291 billion in lower interest payouts dating back to 2019 — and $603 billion going back to 2014.

I can’t plead ignorance. I know interest has been increasing. Still, until the Fed started running up rates to combat inflation, I didn’t have much motivation to move money from checking to, for instance, a savings account — which even now pays just 0.03% at our credit union.

“Your bank isn’t going to track you down and tell you what their best offerings are necessarily. If you have a big enough balance in your checking account, for example, you’re probably not getting paid on that,” Dave Sandstrom said in a recent Money Talk Podcast.

“So if you are going to have some excess cash sitting at the bank, I would make that phone call and say, ‘Hey, what can you guys do for me in a high-yield account or something that’s paying a little bit more than the checking account is?’”

In the same podcast, Kyle Tetting explained how some banks have become more competitive for deposits.

“The banks that really want your money are willing to give you cash to bring your money over,” Kyle said. “So not only are they offering more attractive interest rates, but there are signup bonuses. There are all kinds of ways that when you’re shopping out there, you can take advantage.”

Sure, shopping entails time and effort, including the rigmarole of opening a new account and moving money into it, but Kyle noted that with many banks offering north of 3% on savings, the work could pay off.

I was convinced. But first, my wife and I had to think about how much money to keep in our next-to-nothing checking account.

Circumstances vary, but one suggestion I found was to hold a little more than two months of household expenses in checking, then another four months’ worth in savings. Beyond that six-month emergency cushion, most people could afford to plow cash into longer-term investments.

Doing the math and discussing it with my wife, we agreed on an amount to move from checking to a higher-yielding savings account.

I looked into offers we had received in the mail and then checked websites such as Bankrate.com and NerdWallet before settling on a bank with a name I recognized that offered 3.75% on deposits.

There were hitches, of course. We had to set up a direct deposit from my paychecks and open a checking account with the new bank. Setting up the account involved a lot of sharing of picayune personal information, including a selfie that was then compared to a photo I took of my driver’s license.

Other Money Talk articles from Joel Dresang

The credit union also required some fuss, including creative security questions, such as the color of my debit card. After misconnections and a delayed response to my phone calls, the credit union waived its $20 fee to transfer money from our checking account to the new bank.

In the end, the hundreds of dollars I’m gaining from the switch will be well worth the time I put into making it. The new bank also offered a cash bonus, but it would have required us to make more of a break from our credit union. Despite the stingy rates, I’m loyal to the credit union. The $20 fee waiver further endeared me.

So sticking with the credit union may mean leaving some money on the table. And even at 3.75%, our cash isn’t beating inflation. But it’s earning several hundred dollars more per year. And we could have tried chasing higher yields but settled for what we found. As Kyle Tetting noted, money moves include tradeoffs.

“The one caution is, if it’s safe money, make sure that what you’re putting it in is safe,” Kyle said. “That might mean FDIC insurance for a lot of people. It might mean that you’ve got some certainty that there’s somebody on the other end of the phone if you need to make a phone call. Understand what those tradeoffs are and then, most importantly, understand here’s what I can get if I’m willing to accept this.”

Beside my desk at home is a brass lamp I got 35 years ago when I moved to the Washington, D.C., area and opened an account at a savings bank. I couldn’t turn to an online bank then. I needed a brick-and-mortar institution with branches near where I lived and worked.

That lamp was one way the bank I chose stood out from its competitors. And though I’ve gotten my money’s worth out of the lamp, I’m pleased now to take the higher yield. With the proceeds, I can afford to buy my own lamps.

Joel Dresang is vice president-communications at Landaas & Company.

Seeking a savings account (edited from Bankrate.com):
  1. Determine what the money will be used for.
  2. Figure out when you’ll need to access the funds.
  3. Shop around. Research banks and credit unions and compare rates. Check minimum balance requirements, monthly maintenance and other fees.
  4. Determine your risk tolerance. Money you can’t afford to lose should be in an account that’s federally insured.
  5. Open the savings account and deposit your funds.
  6. Consider setting up a split direct deposit (automatically adding to your savings with each paycheck).

Learn more
Investor upsides as interest rates rise, a Money Talk Video with Kendall Bauer
7 Places to Put Your Cash Now, by Consumer Reports
Compound Interest Calculator, from Investor.gov
How cash fits into your portfolio, a Money Talk Video with Brian Kilb
Be patient holding bonds as rates rise, a Money Talk Video with Steve Giles
(initially posted March 2, 2023)

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