Thanks to increasing interest, savings  accounts are popular again

Banks are offering high-interest savings accounts in response to digital competition, and thanks to a low interest rate, they’re actually a pretty good investment.

Over the past year, plain old savings accounts have outperformed both the S&P 500 yield and the 10-year US Treasury bond yield.

Thanks to increasing interest, savings  accounts are popular again

And, as neo-banks and traditional institutions alike offer increasingly friendly interest rates, some money managers are finally headed back to the bank.

So, what led to the savings account revival?

First, it was competition: Digital-only ‘neo-banks’ like Chime, Revolut, and Monzo with fewer costs than vault-and-teller banks started offering higher interest rates, forcing traditional banks to follow suit.

But on top of that, savings accounts outperformed the S&P 500 by a full 8 percentage points in 2018, making high-yield savings accounts look more attractive than ever in a market that’s forecast to remain volatile. 

Interest just got interesting

The average interest rate across savings accounts at all US banks is still relatively low (0.09%), but some banks offer savings accounts more than 20x higher than the national average: Northeast Bank offers a 2.9% yield, and Goldman’s Marcus and BBVA’s Compass both offer 2.25%.

Yet unlike Robinhood’s ill-fated 3% checking that was canceled last month due to lack of protection, these accounts are still protected by the FDIC despite delivering much higher returns than average. 

A good investment… for now

Savings accounts are an unusually good deal today, but that doesn’t mean they’re gonna stay that way.

Banks change their interest rates, and some of these are unlikely to last for long. Plus, as soon as inflation increases higher than these interest rates (as it often does), saving accounts will start losing purchasing power.

All this new interest in savings accounts is a good reminder that there will never be one right way to invest money — but there will always be a million wrong ways to do it.

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