Why I'm Moving Money Out of High-Yield Savings Accounts This Month

High-yield savings accounts offer risk-free returns on idle cash, but those returns aren’t as high as people think. Inflation and taxes eat away at purchasing power, and some high-yield savings accounts yield low or zero real returns due to those two expenses.

That’s not the only reason I’m moving money out of my high-yield savings account this month. Here are some of the other reasons people should consider pivoting away from these bank accounts.

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Lock in rates with short-term fixed assets

High-yield savings accounts aren’t even the best opportunities to grow your money risk-free. You can get more cash flow from certificates of deposit (CDs), Treasury bills, and bond exchange-traded funds (ETFs). These financial products lock in rates for longer. You can choose a fixed-income asset that matures in a few months or multiple years, depending on when you need the cash.

If the Federal Reserve lowers interest rates later this year, it’s better to lock in a good rate now than endure less favorable annual percentage yields (APYs). Getting a fixed APY over a long period reduces risk, especially as banks tighten their yields.

Inflation is likely to get worse

Oil prices and federal spending heavily dictate inflation. If oil becomes more scarce, it will become more expensive to ship everyday products and services. Companies then pass those extra shipping costs on to consumers. Inflation also goes up anytime the government prints more money, since an increase in the supply of U.S. dollars makes existing dollars less valuable.

Both of those inflation catalysts are accelerating amid the ongoing Strait of Hormuz blockade. Approximately 20% of the world’s oil and liquified natural gas passes through the strait, and the blockade has already caused meaningful oil-price hikes.

The heightened inflation doesn’t look good for idle cash. Investing the money in oil stocks or commodities can help people stay on top of inflation instead of watching their paper cash lose more value.

You can make a lot more with equities

Buying stocks is a riskier proposition than keeping your money in a high-yield savings account, but taking that risk can move you much closer to your long-term financial goals. The S&P 500 index has gained almost 70% over the past five years, which is far more than what you would have made in a high-yield savings account.

Equities are optimal for any funds that you will not need for at least another three years. That way, you’ll have time to endure market volatility and wait for things to get better if your positions correct shortly after you initiate them.

High-yield savings accounts are defensive assets that struggle to hold up during economic cycles with high inflation and low rates. This dynamic, combined with the returns you can get from the stock market, makes other investments look more promising.