Should You Reconsider Your Banking Strategy & Make These 4 Money Moves Instead?
With both prices and interest rates rising, people are reconsidering their banks and the strategies they use to get the most out of their money.
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A new study from GOBankingRates shows that four out of five people are mostly happy with their financial institutions, but many would be open to new kinds of accounts — or even to ditching their banks altogether — if they knew more about their options. Here’s a look at some of the better-banking adjustments people should consider making.
Start by Giving Your Local Credit Union Another Look
If you’re looking for ways to fine-tune your banking strategy, the problem might be the bank itself. About 16% of the study’s respondents have found a happy home for their cash in a credit union — and more should consider the alternative.
“Using a credit union instead of a big bank can offer better rates and more personalized service,” said Dennis Shirshikov, head of growth at Awning.com and a professor of finance, economics and accounting at the City University of New York.
The big difference is that banks are for-profit institutions. Credit unions, on the other hand, are member-owned nonprofit cooperatives, which means they don’t have to satisfy profit-hungry shareholders or investors like publicly traded or privately owned banks. That lets them offer higher yields on deposits and lower interest rates on loans while reducing or eliminating fees — and as Shirshikov pointed out, they’re known for excellent customer service.
Credit unions are not FDIC-insured like banks, but the Congressionally mandated National Credit Union Administration (NCUA) provides an equivalent level of protection for your deposits — but their banking products aren’t the only reason to consider switching.
Many offer credit cards that are worth exploring. For example, the Alliant Credit Union Visa Signature card gives 2.5% cash back on all purchases, beating the 2% offered by Citi Double Cash — long the gold standard of flat-rate cash-back credit cards — and the newer Wells Fargo Active Cash card.
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If You Do Pick a Bank, Pick One That’s Not on Every Corner
A vast majority of the study’s respondents choose banks over credit unions, which is fine — depending on the bank.
“The best option is to choose a high-yield saving account that pays more than a traditional account and keeps your money safe,” said Laura Adams, MBA, a personal finance expert with Finder.com.
The problem is that the largest percentage by far, about 1 in 3, choose the comforting familiarity of big, well-known banks, where high-yield savings accounts exist in name only. If most people have heard of your bank, chances are good that it’s paying you around 400 times less than you could be earning.
Smaller or online-only banks like First Foundation, CIT Bank and UFB Direct offer yields of over 4% on their savings accounts, yet the national average savings deposit rate is just 0.33%.
That’s because the biggest, brand-name banks drag down the average. For example, Chase and Bank of America pay an APY of just 0.01% — that’s just enough to turn a $10,000 deposit into $10,001 after a full year.
Look Beyond Checking and Savings Altogether
The most common strategy is to keep your day-to-day cash in a checking account that yields nothing or close to it while maintaining emergency funds in a savings account that pays a little more.
But the smarter move might be to combine all your cash into a single account that offers the high yields of savings deposits with the utility of checking — full liquidity, debit card purchases, unlimited withdrawals, check writing, etc.
MMAs Offer the Best Features of Both Checking and Savings Accounts
Instead of scattering your cash in different places, consider unifying it in a money market account (MMA), which offers the best of both the checking and savings worlds. Only about 12% of the study’s respondents have one — and the rest might be missing out.
“Money market accounts are worth considering as they offer higher interest rates than traditional savings accounts while still maintaining FDIC insurance,” Shirshikov said.
Not only are MMAs safe, but they’re also versatile. The best MMAs currently offer returns in the mid-fours, beating most high-yield savings accounts while also giving you checking account functionality.
CMAs Can Be a One-Stop Shop For Your Entire Financial Life
A newer alternative, cash-management accounts (CMAs) are jacks of even more trades than MMAs. Offered by brokerages instead of banks, CMAs combine your investment money in the same account where you keep your emergency fund, pay your bills and make daily purchases.
“Cash-management accounts offer high yields and can be a great option for people looking to earn more on their cash,” Shirshikov said.
Brokerages like Wealthfront and Betterment offer CMAs with APYs over 4%.
Think Outside the Box With a Tiered Saving Strategy
Another way to improve upon the traditional checking-over-here, savings-over-there banking strategy is to break your cash cushion down into levels instead of lumping it into one account or another.
“You don’t need to have all of your emergency funds in a savings account,” said Brian Davis, real estate investor and founder of SparkRental. “I think of my emergency fund as a tiered series of defenses. I have some cash in savings, and I have some extremely stable, liquid investments that pay more modest returns, and I have unused credit cards standing by for emergencies.”
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Methodology: GOBankingRates surveyed 1,000 Americans aged 18 and older from across the country on between December 7 and 12, 2022, asking nineteen different questions: (1) What category does your current financial institution fall under?; (2) Have you considered changing Banks within the past year?; (3) If you have considered changing banks in the past year, were any of the following factors? (select all that apply):; (4) Which feature, perk, or other offering is most important to you when opening an account with a new institution?; (5) Are you currently satisfied with all your banking products and services offered by your Bank/Credit Union?; (6) Would you ever have different types of accounts across multiple banks? (i.e. Checking at Chase, but Savings at TD Bank); (7) What is your most preferred method of banking?; (8) Which of the following is the biggest factor of you staying with your current bank?; (9) Which of the following bank accounts do you currently use/have open? (Select all that apply); (10) How much is the minimum balance you keep in your Checking Account?; (11) How much do you currently have in your Savings Account?; (12) What amount of a sign up bonus would make you consider switching banks?; (13) Have you considered using any app-only banking platforms (aka neobanks) in the past year (e.g. Current, Upgrade, Chime, Dave, etc.); (14) How important is it to you for your bank to be affiliated with a crypto exchange/platform?; (15) In the past year how often have you written a physical check?; (16) When was the last time you visited your bank in-person?; (17) Why would you choose to visit your bank in-person? (Select all that apply); (18) When you think about banking, do you think of it as something you need or don’t need?; and (19) What services/products do you expect from your Bank and/or Credit Union? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.