Sure, the mega monster banks were paying a pitiful rate. But what did it matter? Even the best high-yield savings accounts paid less than you'd find in your car and under the couch cushions.
That’s changed. The Fed has raised interest rates 3.75% in 2022, excluding an expected 0.5% hike this month.
With the stakes much higher, people are looking for any edge they can find to earn on their cash. That includes leapfrogging from bank to bank in search of the highest yield. as a listener of the Clark Howard Podcast recently asked about.
Can I Change Savings Accounts in the Middle of a Month To a Bank Paying a Superior Rate?
Am I hurting myself if I move money between savings accounts in the middle of a month? That's what a listener asked on the Dec. 5 podcast episode.
Wrote Michael in Ohio: "I have savings accounts at four online banks. I move the money around among the accounts to take advantage of higher interest rates. Is there any downside to moving money before the end-of-month interest payment has been posted, or can I just move the money where the interest is highest no matter the day of the month?"
Savings accounts typically feature daily compound interest. But banks typically pay out any earned interest once per month.
Michael is essentially asking this: If I move my money from Savings Account A to Savings Account B halfway through the monthly cycle, will Savings Account A still give me the interest I earned in the first half of the month?
"The only thing you have to look for is you have to make sure that you're earning a daily interest calculation. Almost all savings accounts are going to calculate interest daily. As long as you are in a savings account that does not calculate interest monthly, but does so daily, you're fine," Clark says.
"And you can at any point during a month move money from one online bank to another to another."
Typically, the monthly interest payments that banks disseminate are based on your average daily balance for that month. So if you transfer the money out of your account halfway through the month, your daily average balance will equal 50% of the money you transferred out (thanks to $0 entries for the second half of the month).
The same should hold true for the bank where you’re transferring the money.
The upshot: There’s no need to wait until the monthly payout to transfer your money. If you’re only concerned with squeezing more yield out of your savings, you can move your money to a bank paying a higher rate at any time.
Interest Rates Are Peaking, Clark Predicts
The interest rates at the best high-yield online savings accounts have been consistently climbing for the entirety of 2022.
For now, the Fed remains hawkish. It has raised interest rates at every possible opportunity. Although it appears that the Fed may start dialing back its aggression, poised to break its streak of four consecutive 0.75% rate hikes, the interest rate arrow remains pointed up for now.
However, Clark thinks that if you can afford to tie up your money for longer, and you’re searching for max yield, you should consider a CD instead.
This is essentially a bet that interest rates will flatten out or even decline in the not-so-distant future.
“As inflation is being squeezed out of the economy, we’re already seeing longer-term interest rates coming down,” Clark says.
“I think there’s an opportunity to lock in money that you can afford to lock in, into longer-term CDs placed through the best place of all, Charles Schwab or Fidelity Investments. They’re paying the highest rates on FDIC-insured CDs.”
Fidelity and Schwab are paying in the 4.7% range for 12- to 18-month CDs right now. The top savings accounts are paying in the 3% range, with an occasional opportunity above that (often with strings attached).
Clark cites turmoil in China as one of several factors that could cool inflation faster than most of us realize. If that happens, expect the hawkish sentiment from the Fed to dissolve before long.
"There are so many signs that the inflation heat is cooling. And so that means interest rates will fall over time combined with a slower economy. That's why I think there's a window of opportunity for probably the next few months to lock in money longer term in CDs before those rates also turn down," Clark says.
"Understand that is a hypothesis. It's an educated guess. It is the best information I can give you based on what the tea leaves seem to be reading."
Final Thoughts
It’s a great time to shop for a better savings account. That’s especially true if you bank with a giant national company, or even a large regional bank.
However, locking into a 12- or 18-month CD at Fidelity or Schwab could be an even better move right now.
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