Approach High-Yield Accounts With Caution

Americans currently stashing cash in savings accounts currently enjoy higher yields than they have since the introduction of iPhone in this century’s first decade.

Naturally, in seeking to juice returns as high as possible, many savers have turned to high-yield accounts from non-traditional sources. Those include online financial institutions that may have lighter overhead costs than their brick-and-mortar counterparts.

However, financial advisors caution that investors should study the account terms closely before committing themselves to such accounts. And even if they find those terms acceptable, such options may not have the flexibility and ease to which they’re accustomed.

“The potential drawbacks of these accounts is that those terms could change quickly,” said Joey Loss, an advisor with Flow Financial Planning in Jacksonville, Fla. “It’s important for advisors and clients alike to make sure that they are checking the fine print before opening accounts to ensure the high rate is not just a short, introductory rate.”

Investors don’t need to tap obscure, online sources for high yields. For instance, CFG Bank, the market leader, pays 5.12%, CIT Bank pays 4.85% and BMO pays 4.5%.

Ensuring Cash Access

Online and mobile deposit and withdrawal processes, though, present potential liquidity problems for customers, said Desiree Kaul, an advisor with Main Street Planning in Satellite Beach, Fla.

“When conducting transfers at online institutions, there may be a waiting period of two to three business days for transactions,” Kaul said, “and the bank may put a temporary hold on deposits.”

That’s why savers should at least have a line of credit as an option with a physical bank if they need cash quickly.

“One drawback of the online institutions with high-yield savings is that it takes a few days to transfer money back to your brick-and-mortar bank,” Cox said, “so you should also have access to more liquid options for true emergencies.”

High-yield accounts play place limitations on transfers and withdrawals altogether, particularly in the current environment in which many banks hunger for deposits.

The Federal Reserve once required banks to limit customers to six savings withdrawals per month. It has paused that rule since 2020, but many institutions have maintained it or charge fees if customers make transfers exceeding a certain amount.

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