Easy Math: 1.00% > 0.05% Interest on Cash

January 29, 2015  | By Kevin Smith

As of today, 01/29/15, interest rates paid for online savings accounts are in the 1.00% range and very close to the rates 12 month CDs are paying. We encourage clients with excess cash to consider these online savings accounts to fight against inflation. CDs typically have penalties for early withdrawals, whereas online savings accounts are typically completely liquid and without penalties.

Anyone who has been to our office has heard us preach about the importance of a permanent cash reserve with a minimum of three months of living expenses. The primary purpose of the cash reserve is to help you get by between jobs, and the secondary reason is to cover large unforeseen expenses and insurance deductibles. A frightening percentage of people are one medical emergency or job loss away from losing their house. This concept applies to all levels of income. We encourage a larger cash reserve for people who work in industries that are historically volatile.

There are many possible reasons for wanting or needing to hold excess cash, ranging from plans to buy a new home in the near future to simply feeling more comfortable with a larger than recommended cash reserve. If part of your financial plan is to keep more than $50k or more than 6 months of expenses in cash, you may want to consider an account that earns more than your primary checking and savings accounts.

  1. 1.  Go to www.Bankrate.com.
  2. 2.  Just under “Welcome to Bankrate”, click “Savings”, then click “Next”.
  3. 3.  You will find a list of banks offering savings account paying 1.00% or close to it.  They come in and out of favor, so I don’t have a standing recommendation. Be sure to read the details of the arrangement to make sure they don’t have a minimum number of transactions or some other requirement you may not want, although most of them do not have significant strings attached.


We realize you are probably not thrilled by a 1.00% return on your cash, but if you are sitting on $100,000 of cash today earning $50/year, you could easily put $50,000 in a high yield savings account at 1.00% and earn $500/year on those funds. That may be worth the 30 minute exercise of setting up an account. Not a bad return on your time!

Posted in: Investing
Kevin X. Smith, CFA
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Kevin is responsible for advising clients for whom he is the lead financial advisor. He also manages the operations and development of the firm, and oversees all of the investments of Austin Wealth Management clients. Kevin is on a mission…Read More

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