Why HYSAs Aren't Worth It

Last year I was introduced to a trendy new idea in the banking world: High Yield Savings Accounts (HYSAs). 

 Every finance community I read had people saying oh you've GOT to get a HYSA! Why wouldn't you have an HYSA? Here's a website with the best interest rates! Here's a new weird online startup bank ith HYSAs! Move thousands of dollars into some weird website you've never heard of!

The "high yield" everyone was so excited about? 1.5% annual interest rate. Maybe 2%. That's a high yield?

They're telling me that if I have $1000 to save I can research, chase rates, obey weird new banking rules about direct deposit and minimum debit transactions, and if I pick the best website I can earn $20 a year?

This is silly.

It's now 2023. Rates are higher - upwards of 5%, which is nicer. So now I'll get $50 a year per $1000. But that rate isn't really difficult to get either. I've also found similar rates at...

1. My local "brick and mortar" credit union, through their CDs
2. SPAXX, the boring money market account that my cash sits in when I transfer it to Fidelity but haven't invested it yet

I try to live my life simply. I don't want accounts spread out to a million places - I don't want to keep up with all that. I like my local credit union. They have branches, good loan rates, good CDs, and nice people.

I feel like CDs are a good place for my emergency savings because I'm pretty sure I won't need it any time soon and they keep me from feeling tempted to use the money. CDs have early withdrawal penalties, but guaranteed interest rates. A HYSA can lower the rate any time, a CD promises you a given rate for the term of the CD, which is usually a year or more. Last year when rates went up, I had a 2% CD. The penalty for closing it early was 6 months of interest. I realized that if I closed it, I'd lose $10 for every $1000 I had in there. But if I moved it to a 4% CD for at least six months, I'd earn $20 for every $1000. I knew I wouldn't need it for 6 months so I went for it. That's all that happened. I wasn't arrested, deported, talked about on social media. There's this rumor that CDs really "lock up" your money - no. They create a small obstacle to getting it out early, enough to make you think about it but not enough to really keep you out if you need the funds.

It bothers me that people act like HYSAs are this crazy new idea, when savings accounts, CDs and money market funds have always paid decent interest and there's no definition for "high". New startup banks are using the buzzword to differentiate themselves from "brick and mortar", and trying to make us feel trendy, but there's nothing weird or trendy about just looking for decent interest rates. Look around town, try your local credit union, and see who will give you the best interest with the least weird rules.

SPAXX is boring and quiet. It's not hugely advertised. I only noticed it was 4.9% when I went to look at why my dividends seemed so oddly high. It's just the default cash position for Fidelity, nothing you even sign up for, it's just automatically given. If a brokerage firm can just quietly give such a nice dividend without making a huge deal about it, why are all these online banks inventing new words to entice you in? They're nothing to write home about.