Our Advice on Where to Park Your Money as High-Yield Savings Rates Fall
High-yield savings accounts can be useful when you need easy access to your money, but as savings rates decline, there may be better options if your priorities are higher interest, longer rate guarantees, tax-deferred growth, or retirement income.
If you have been keeping a large amount of money in a high-yield savings account, you may have noticed that the interest rate is not what it was a couple of years ago.
As interest rates decline, banks can reduce the rates they pay on high-yield savings accounts, money market accounts, and CDs.
That does not mean you should automatically move your money somewhere else. The first question is what do you need this money to do?
If you need complete liquidity, a high-yield savings account may still be the right choice. If this is money you probably will not need for several years, there are several alternatives worth comparing.
1. Multi-Year Guaranteed Annuities
For someone who wants a guaranteed fixed interest rate for several years, one of the first options I would compare is a multi-year guaranteed annuity, commonly called a MYGA.
A MYGA is a fixed annuity that guarantees an interest rate for a specific period. Terms can typically range from about two years to 10 years.
Instead of leaving your money in a savings account where the bank can continue lowering the rate, a MYGA allows you to lock in your interest rate for the entire guarantee period.
Pros
- Guaranteed interest rate for the selected term
- Principal is protected from stock market losses
- Interest grows tax-deferred
- Many contracts provide annual penalty-free withdrawal options
- Can work well for retirement savings you do not immediately need
- Protects you from having to reinvest the money every time short-term rates fall
Cons
- It is not a bank account
- It is not FDIC insured
- Surrender charges can apply if you withdraw more than the contract allows
- Guarantees depend on the claims-paying ability of the insurance company
- Taxable withdrawals before age 59½ may be subject to an additional federal tax unless an exception applies
Who Could Benefit?
A MYGA can make sense if you have money that you do not expect to need completely liquid for several years and want to lock in a predictable return.
It can also work well for retirees who want their savings to continue earning interest while maintaining access to a portion of the account for income.
Someone younger than 59½ can also use a MYGA for long-term retirement savings. However, I would generally avoid putting money into an annuity if you expect to need substantial withdrawals before age 59½.
Who Might Not Benefit?
A MYGA should generally not be used as your emergency savings account.
If there is a good chance you could need all of the money next month or next year, keep that portion of your savings liquid.
2. Money Market Accounts
A money market account is another option when liquidity is still important.
It operates similarly to a savings account and may provide a competitive interest rate while allowing relatively easy access to your money.
Pros
- High liquidity
- Easy access to your cash
- Typically FDIC insured when held at an insured bank and within applicable limits
- Simple to understand
Cons
- The interest rate is usually variable
- The bank can lower your rate
- Rates may continue falling when short-term interest rates decline
- Interest is generally taxable in the year it is earned
Who Could Benefit?
Money market accounts can be useful for emergency funds, upcoming purchases, tax payments, home purchases, and other short-term expenses.
Who Might Not Benefit?
If you know you will not need the money for several years and your main goal is locking in the highest fixed rate available, other options may be more attractive.
3. Treasury Bills
Treasury bills are another option for short-term savings. With a Treasury bill, you are essentially lending money to the U.S. government for a specific period.
They can be useful if you want a short-term place for your money but do not necessarily need immediate savings-account liquidity.
Pros
- Backed by the U.S. government
- Short maturities are available
- Can be useful for short-term savings
- Can be laddered so portions of your money mature at different times
Cons
- You must reinvest the money when each Treasury matures
- Future interest rates could be lower
- Selling before maturity can expose you to market-price changes
- Requires slightly more management than a savings account
Who Could Benefit?
Treasury bills can work well when you want to earn interest on money that you expect to need within the next several months or couple of years.
Who Might Not Benefit?
If your goal is to lock in today’s interest rate for five, seven, or 10 years, short-term Treasury bills may create too much reinvestment risk.
4. Brokered CDs
Brokered CDs are certificates of deposit purchased through a brokerage account rather than directly from a single bank.
This can allow you to compare CDs from multiple banks without having to open a separate account at each institution.
Pros
- Fixed interest rate
- Specific maturity date
- Potentially competitive rates
- Access to CDs from multiple banks
- FDIC insurance may apply when applicable requirements and limits are met
Cons
- Selling before maturity could result in receiving less than you originally invested
- Some CDs may be callable
- You have to reinvest the money when the CD matures
- Future rates could be lower
- Less flexible than a savings account
Who Could Benefit?
Brokered CDs can work particularly well if you already have a brokerage account and want to build a CD ladder with several different maturity dates.
Who Might Not Benefit?
If you need immediate access to all of your money or want tax-deferred growth, a brokered CD may not be the best fit.
5. Fixed Index Annuities
If you are willing to give up a guaranteed fixed rate in exchange for more potential interest, another option is a fixed index annuity.
A fixed index annuity is not a direct investment in the stock market.
Instead, the insurance company calculates the interest you earn based in part on the performance of a market index, such as the S&P 500, Nasdaq-100, or Dow Jones Industrial Average.
If the index performs well, you may earn interest based on the contract’s participation rate, cap, spread, or other crediting method.
If the index declines, the index strategy generally does not lose value solely because the market declined. However, you may earn 0% interest for that crediting period.
Pros
- Protection from direct stock market losses
- Potential to earn more interest than a traditional fixed account
- Tax-deferred growth
- Several interest-crediting strategies may be available
- Many contracts also offer a fixed-interest strategy
- Some contracts can provide guaranteed lifetime income
Cons
- You do not receive the full return of the underlying stock market index
- Some years may earn no interest
- Caps, participation rates, or spreads can limit earnings
- Surrender charges can apply
- Contracts can be more complicated than a savings account or MYGA
Who Could Benefit?
A fixed index annuity can make sense for someone using the money for long-term retirement planning who wants principal protection but also wants more growth potential than a traditional fixed account may provide.
It may also be useful if you eventually want to convert your savings into a predictable retirement income stream without permanently annuitizing the contract.
Who Might Not Benefit?
If you need the money within the next year or two, or your primary goal is simply getting a guaranteed fixed interest rate, a MYGA, CD, Treasury, or savings account may be easier to use.
6. Short-Term Bond ETFs
Short-term bond ETFs are another possibility, but this is where I would stop thinking of the money as simply being “parked.”
A bond ETF is an investment, and its value can go up or down.
Pros
- Liquidity during market hours
- Potential income
- Diversification across multiple bonds
Cons
- Principal is not guaranteed
- Share prices fluctuate
- Interest-rate risk
- Credit risk
- You can lose money
Who Could Benefit?
Short-term bond ETFs may make sense for investors who are comfortable with some market fluctuations and want bond exposure as part of a broader investment portfolio.
Who Might Not Benefit?
If your number-one priority is protecting every dollar of principal, a bond ETF is not the same type of solution as a bank deposit, CD, MYGA, or Treasury held to maturity.
7. Corporate and Municipal Bonds
Corporate and municipal bonds can potentially provide more income, but it is important to understand why some bonds offer higher yields.
Generally, the more interest an investment promises, the more risk you need to evaluate.
Pros
- Potentially higher income
- Different maturities are available
- Municipal bonds may provide tax advantages in certain situations
- Can add diversification to an investment portfolio
Cons
- Principal can fluctuate
- Issuers can default
- Bonds can lose value when interest rates change
- Some bonds can be called before maturity
- Higher-yield bonds generally involve additional credit risk
Who Could Benefit?
Corporate and municipal bonds may work for investors who understand the risks and want to build a diversified income-producing investment portfolio.
Who Might Not Benefit?
If your primary goal is a guaranteed return of principal and predictable interest, do not assume a higher-yield bond is equivalent to a fixed annuity or CD simply because the advertised yield is higher.
8. Private Lending and Alternative Investments
Private credit, private lending, and alternative investments may advertise considerably higher yields than traditional savings products.
That additional potential return generally comes with additional risk.
Pros
- Potentially higher income
- Can provide additional portfolio diversification
- May behave differently from traditional publicly traded investments
Cons
- Credit risk
- Potentially limited liquidity
- Limited transparency with some investments
- Potential loss of principal
- Higher fees may apply
- Can be considerably more complicated
Who Could Benefit?
Alternative investments may be appropriate for experienced investors who have sufficient liquidity elsewhere and can tolerate the possibility of losing money.
Who Might Not Benefit?
I would not use private lending as a replacement for an emergency fund, savings account, CD, or other money that you cannot afford to lose.
So Where Should You Actually Put Your Money?
The answer depends largely on when you expect to need the money.
- Need the money at any moment? Consider a high-yield savings or money market account.
- Need the money within several months to a year? Compare savings accounts, money markets, Treasury bills, and CDs.
- Do not need the money for several years and want a guaranteed rate? Compare current MYGA rates.
- Saving for long-term retirement and want more growth potential without directly investing in stocks? Compare fixed index annuities.
- Comfortable risking principal for potentially higher returns? Bonds, bond funds, private credit, and other investments become possibilities.
Higher interest is not automatically better. You have to look at what guarantees, liquidity, safety, and flexibility you may be giving up to get the higher potential return.
When a High-Yield Savings Account Still Makes Sense
There is nothing wrong with a high-yield savings account. In fact, it can be one of the best places for money when liquidity matters more than maximizing your interest rate.
A high-yield savings account can be appropriate for:
- Emergency savings
- Upcoming home purchases
- College expenses
- Tax payments
- Major purchases
- Business cash reserves
- Money you expect to need within the next several months
The bigger concern is leaving a significant amount of long-term savings in a variable-rate account indefinitely when you do not actually need all of that money immediately available.
Other Insurance Worth Considering
If this money represents a significant portion of your retirement savings, protecting the account itself is only one part of your overall retirement plan.
Long-term care insurance or hybrid life and long-term care insurance may help protect your savings from the potentially high cost of home healthcare, assisted living, or nursing-home care.
Life insurance may also be worth considering if a spouse, children, or other beneficiaries depend on your income or savings.
These products are not replacements for savings accounts or annuities. They solve different problems. However, if your goal is protecting your retirement savings, it makes sense to also consider the expenses that could eventually consume those savings.
Our Recommendation
Start by separating your money into different buckets based on when you will need it.
Keep enough money immediately available for emergencies and short-term expenses.
Next, determine how much you could comfortably leave alone for two, three, five, seven, or 10 years. That is where comparing CDs, Treasuries, MYGAs, and other fixed-interest options can become worthwhile.
For longer-term retirement money, I would also compare fixed index annuities if protecting principal while maintaining additional growth potential or creating future retirement income is important to you.
There is no single account that is best for everyone. The right strategy may actually involve using several different accounts for different portions of your money.
At The Annuity Expert, we’re an independent annuity broker and insurance agency. We can compare multi-year guaranteed annuities and fixed index annuities from multiple insurance companies based on interest rates, liquidity, financial strength ratings, and guaranteed payouts to determine which option best fits your financial goals.
Want to compare MYGA rates? Contact The Annuity Expert for free quotes and a no-obligation consultation before making your next move.
Disclaimer: This information is for educational purposes only and should not be considered financial advice. Always research and consult with a financial professional before making any financial decisions.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.