The yield chase is on. After more than two years of historically low interest rates, savers are rediscovering that they can earn money on their money by letting it sit.
During the pandemic, many savers noticed that their checking account paid little or no interest. Their savings account didn’t pay much either. Maybe they moved money into a high-yield savings account. Perhaps spurred by ads from online banks, they decided it was worth the trouble to nab an extra 0.5% or 1% of interest.
If you find money-market funds’ higher yields alluring, remember these two words: “black swan.” This refers to highly unusual occurrences that are impossible to predict and wreak havoc. An investor’s goals come into play. If you’re keeping cash on the sidelines while waiting for the right time to buy stocks, advisers might suggest putting the money in a money-market fund. But if you intend to leave it for many years, you may regret your decision if another black swan event strikes.
“And if you try to get a mortgage, lenders might go through every deposit you’ve made and have you explain it,” Haas says. If you’ve moved lots of money around in recent years, it can add another headache to securing a home loan. Haas says that, as a general rule, if the difference in yield exceeds 0.50%, it may be worth exploring a move. If you’re wondering whether it’s worth transferring your cash to jump from 3.75% to 4.25%, he says the extra interest “isn’t as important” because rates can fluctuate over time.