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I work at home, but I don’t work alone: Every time I walk into the kitchen to refill my coffee, I find my roommate’s cat lying on the ground, blissfully napping within the sun rays streaming in from the window.
Truman’s got us humans wrapped around his finger. Throughout the winter, we bring his bed into the kitchen and position it in the sunshine so he could be extra warm. This, after all, means certainly one of us has to stand up and drag the bed — with him in it — a pair inches every half-hour because the sun moves within the sky. What a life.
I used to be reminded of Truman’s sun siestas after I read recently about how folks are moving their deposits from bank to bank to try to maximise their annual percentage yield, or APY.
Though the Fed hasn’t made any definitive moves yet, the sky-high APYs which have change into the norm for high-yield savings accounts have began to fall, giving latest urgency to the so-called “rate-chasing” trend.
Should I try rate-chasing?
Cicely Jones, a licensed financial planner at Equitable Advisors, tells me that moving my money once could be smart, especially if I’m going from a standard savings account to a high-yield account. For context, the typical savings rate is 0.45%; even with its newly reduced APY, Ally is offering 4.2%.
Beyond that, nevertheless, chasing rates is hard.
“Moving initially to a spot with the next rate of interest than your bank is great,” Jones says. But it surely’s a unique story, she adds, “for those who’re selecting, like, monthly or quarterly or what have you ever … who’s going to be the most effective based on perhaps 0.1% difference.”
Jones says she worries about how easy it’s to mistime my moves and miss out on a possible interest-rate payment from my previous bank (or my latest one). One other risk is by chance leaving some money behind within the shuffle.
These forms of logistical hurdles could be financially draining at worst and annoying at best.
“Me personally, I’m not chasing any additional 0.1%, 0.2% percent only for simplicity,” says Kyle Mack, a CFP at Zhang Financial. It’d be “a hassle” to maintain track of the whole lot, he says.
Zhang’s Rob McDougall points out that how much of a pain that is depends upon how much money we’re talking about.
If someone is moving $500,000 from bank to bank to capitalize on barely different APYs, it may possibly mean a big payday (and due to this fact could be well worth the time it takes to set the whole lot up). But when the quantity in query is closer to $10,000, the rise in yield isn’t going to be drastic enough to justify the legwork.
In reality, if I actually have a lot money in my savings that rate-chasing would line my pockets, a high-yield savings account might be not the most effective place for it.
Jones recommends keeping three to 6 months of expenses stashed in a high-yield savings account for my emergency fund. But unless I’m planning to purchase a house or automobile or whatever within the near future, she says I should probably invest the remaining. She suggests I take a web based risk tolerance questionnaire to determine a great combination of stocks and bonds, then invest systematically.
(For his part, McDougall says something diversified like Vanguard’s Total Stock Market ETF or iShares’ Core S&P Total US Stock Market ETF could be good for young adults dipping their toes into investing.)
Taking a long-term view is unquestionably the technique to go, in line with U.S. Bank’s Sekou Kaalund, head of branch and small business banking. He tells me that my decision to change banks should ideally be tied to something beyond “the shiny object,” or high APY, because that may change on a whim.
Plus, deepening my relationship with a bank I have already got could be fruitful.
Kaalund says they could be more prone to help me when I would like it down the road, because I’m meaningful, loyal client versus a rando who just bopped in to benefit from a high APY.
The underside line
Rate-chasing is essentially a waste of time. The yields aren’t going to be well worth the elbow grease, and in the event that they are, I should probably consider investing as a substitute.
“My best advice is to search out a bank you trust with a great APY and follow that,” Jones says. “Check every year to be sure that it’s still competitive, and perhaps make a switch then if it is not.”
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Financial Planners Are Telling Clients to Make This Investing Move Before Interest Rates Drop