16 thoughts on “Cash Is Dead – Why Your Savings Account is Losing Money

  1. It’s tough right now because I am saving up for a house down payment and for a child in the near future. So while the interest rates are absolute trash, my HYSA is with Wealthfront, which has been destroyed by the rate changes as well. I wish I could invest the 30k+, but it’s simply too risky in this environment, not to
    Mention the taxes I’d pay to sell equities. Soooo I just grit my teeth and keep funding the account.

    • John,

      It is very tough out there. That’s understandable that you don’t want to invest the funds for the large purchase and the child. I can’t fault you for that. You bring up a fair point with the taxes too. I wish the interest rates were climbing. It just makes me so mad.


    • Thank you very much Kody! Yeah, its very tough out there. It sucks seeing your “high yield” savings account earning 1%-1.25%. I’ll have to start calling it a “slightly less low savings account” or something.


  2. In the US, you could invest in the SHY ETF https://www.ishares.com/us/products/239452/ishares-13-year-treasury-bond-etf#/ , Looks like the distributions are all taxed as ordinary income. Look at chart for the last 5 years.

    Another option is to stick your “savings” in a brokerage account. You would of been earning little interest in a savings account. You could sell deep out of the money put options (if brokerage as no option assignment fees). Also, you could have in brokerage account sitting in cash and wait for a big opportunity. A big decrease in a stock price for a blue chip stock could be an opportunity. It is very liquid.

    High interest savings account? The interest rates that these accounts pay is laughable.

    • IP,

      The yields are awful. We really do need to stop calling them high yielding accounts. I thought about adding brokerages to the list. Unfortnately, Fidelity cut the dividend yield on my money market account too! You can’t escape the interest rate cuts. However, your point is great. Other brokerages may offer higher yields on the cash. Definitely consider that if it is an option.

      Thanks for the great comment!

    • Can you give an example of the deep out of the money put options you are talking about? I feel like even if you are making money from these options, you will tie your money to a position and when you need the money, it will be trapped into a position. So yes while you can make money by selling those put options, you can have a chance of having your money trapped when you need it most.

  3. I’m hating these decreases. I’m finally in the position to really build cash savings and the environment is awful. Additionally if we assume that 2% is the inflation rate then you need 2.36% to end up with 2% net after the good ole 15% tax rate on interest. You’re right about an S&P 500 fund not generating enough as well. DGI is the next best game in town, unless you own rental property outright and are collecting monthly. Good luck out there my fellow dividend hounds!

    • The dividend increases are brutal Chasing Divys. You also raise a great point about the impact of taxes as well. Even meeting inflation, in a fund, you are losing after taxes. The dividend hounds are relentless though, so I’m sure we will find a way to make it work.


  4. I’ve got three years of living expenses in money market and the rest of my assets split between bonds and index funds. But I don’t need any growth really, because I over invested. I enjoyed work so I only retired slightly early. But I also did live through the years of double digit interest rates and what I remember is that inflation was very high too, as were income taxes. So while you could get 12% on a CD by the time you adjusted for inflation and paid taxes on the gain you still lost money. A lot of people think back to those as good old days because of the interest but the impact of inflation pushing you into higher and higher tax rates because you also got double digit raises just to keep even was insidious. I kind of think low interest and low inflation may be actually better. On the negative side though millennials and others have had to contend with very flat real wage growth, my generation saw significant real wage growth, and that’s really how you get ahead. Very good post.

    • Thank you very much Steve. That is very kind of you to say. I appreciate your insight here as well, especially since you lived through the high inflation period. You are correct, people look back, like me, and think 12% would be awesome. But the rates were rising in the enviornment for the same reason they are decreasing today. Each interst rate period should be evaluated separately to understand what was going on at the time. I also think you bring up a great point about wage growth. The stalling wage growth for many over the years is something that isn’t talked about as much, but a critical piece of imporving your financial position.

      Thanks again for the awesome comment!

  5. I have close to 15% in cash right now, it’s a tough balance to find yield, I experienced the same with chasing yield. I recently came up on an account that gives 1.75% APY if you meet their “requirements” spending on their debit card for up to 25K cash. It was also part of the bank bonus signups that you described. The bank is called Connexus with the Xtraordinary checking account.

    When the pandemic hit my cash pile was getting too high at slightly over 20%, I started deploying it more aggressively and my cash got down to 5%. My theory now is to just keep being patient with the saved money and hold around the same cash value that I have now but aggressively invest the rest of the money instead. If we get another pull back, I’ll start adding my reserves. Even if we are losing to inflation, I think it’s best to wait for the right opportunity. Look at some of the values we got like for example with Discover (DFS) earlier this year!

    • That is a very nice yield on the account. Unfortunately, that is the hard part with new bank and credit union account promotions. The terms and conditions needed to earn the high yield or the bonus sometimes make it too inconvenient. If someone said it wasn’t worth the time, I couldn’t blame them. But man, that is a great promotion that you earned!

      I think that you have a very solid, well thoguht out plan for what to do with you cash and how to make it work for you!


  6. Good post and timely topic. My AMEX HYSA is in the same boat as your accounts. Sitting on cash is so dangerous, especially with HYSA interest rates this low. Bond markets aren’t much better unless you’re buying junk. As you suggest, dividend stocks are a good option, especially ones you would be ok holding for a long time in case there’s any near term decline in price.

    • Thank you very much Accessible Investor! It doesn’t surprise me at all that AMEX joint the cut crowd in the HYSA sector. That is frustrating man! Buying junk bonds is not the way to go for savings/emergency funds, just to earn a little extra yield. But as you said, that’s where the yield is in the bond market.

      Hopefully more dividend stocks start trading at a discount once again!


  7. I share your views Bert. A savings account is a losing proposition in the overall view.
    I do keep some cash in it for that rainy day for that “just in case”, you know, like a tsunami that leaves me alone on top of my hill or the Canadians invade and I’m forced to eat $50 ramen… I’d rather not have to wait for a stock sale and transfer time If I need cash, so I have a bit stashed.
    But I would not save more than a couple percent of my worth. It’s a slow degradation. I guess it’s the price to pay for being liquid in an emergency.
    – John

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