I Wouldn’t Buy an Annuity, CD, or Bond When Banks Are Paying This Much

I’m the type of person who likes to get paid to do nothing. This doesn’t mean I’m lazy and don’t work for my money. But I like to put the money I’m not using into different assets that can produce income without me having to lift a finger.

To that end, I like to spread my money across different assets. I have a pile of money in stocks because I’m a firm believer that that’s where the typical investor will see the most growth over time. I also have some money in more stable assets, like CDs and bonds.

It’s important for me to have some of money in assets that are less volatile even though I’m not close to retiring, and even though I have a separate emergency fund. But these days, I’m not turning to products like annuities, CDs, or bonds to generate steady returns on my money. I’m turning to a high-yield savings account. And you may want to do the same.

Why a high-yield savings account makes sense

In late 2024, the Federal Reserve began lowering interest rates in response to cooling inflation. In spite of that, high-yield savings accounts are still paying around 4%. And that’s a really awesome deal given that lack of risk involved.

As long as you choose a bank that has FDIC insurance and you limit your high-yield savings account deposit to $250,000 (or $500,000 for a joint account), you can basically sit back and collect free money in the form of interest without having to break a sweat.

Granted, CDs give you FDIC protection, too. But with a CD, there can be costly penalties for taking a withdrawal before your CD matures. High-yield savings accounts don’t put that kind of pressure on you.

With a high-yield savings account, you don’t have to commit to keeping your money in the bank for a preset period of time. Rather, your money is yours to withdraw on a whim if you want to.

Also, while bonds are a fairly safe investment, they’re not risk-free. But a high-yield savings account could be risk-free if you make a point to not exceed the FDIC insurance limit.

And while a lot of people like annuities for the guaranteed income, there can be high costs in setting them up and maintaining them. With a high-yield savings account, you may not have to pay so much as a dime in maintenance fees if you choose the right bank.

It pays to shop around for a great rate

Although high-yield savings accounts are paying pretty generously right now, we don’t know how long today’s rates will stick around. If inflation continues to cool and the Fed continues to lower its benchmark interest rate, high-yield savings account rates will likely follow suit. So it’s a good time to pump some extra money into savings.

But don’t just settle for the first decent rate you see. Shop around so you know you’re getting the best rate available today.

Of course, you don’t want to rely too heavily on a high-yield savings account to meet your long-term financial goals. You shouldn’t, for example, stop putting money into the stock market if you’re 20 years away from retirement and fall back on a high-yield savings account instead.

Rather, in the context of your stable/less volatile investments, a high-yield savings account is a smart bet based on today’s interest rates. So it pays to take advantage while you can.

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