Are HYSA obsolete? [High Yield Savings Accounts]

[We're wolves]

In light of products such as Fidelity's cash management account (CMA), which allows holdings in extremely safe, high yield money market funds, while ALSO able to effectively function as a checking/savings account with ATM and check writing options, are traditional online high yield savings accounts (HYSA) effectively obsolete? In other words, what benefits does a HYSA provide that Fidelity CMA cannot?

I can think of two things:
1. FDIC insurance on deposits for HYSA - While this is true, that a CMA does not have FDIC protection (unless you hold money in the non-competitive bank deposit core position), you have the ability to invest in extremely safe government security MMF, such as FDLXX. My thought is that if the government defaults on its treasury obligations, then something has gone very very wrong and its ability to ensure FDIC insurance on bank deposits might be in doubt as well.

2. The ability to directly buy CD's from the bank, rather than a brokered CD from Fidelity - Is this much of an advantage though? I mean, I don't know much about brokered CD's but don't they function essentially the same as direct bank CD's? Any downsides?

In light of the above, are there any other benefits that I am missing from traditional online HYSA? Or is it a no-brainer to switch to Fidelity CMA or something similar?

[jeef]

I moved most of my stuff into fidelity recently - so I have the same questions. And I agree if a stable fund goes belly up we are in doom and who knows what FDIC will be worth

[ScubaHogg]

You are correct, there’s no good reason to hold meaningful savings in a HYSA when treasury money market funds are right there. Finance Buff had a really good write up on it

https://thefinancebuff.com/goodbye-bank ... nions.html

[retired@50]

...
In light of the above, are there any other benefits that I am missing from traditional online HYSA? Or is it a no-brainer to switch to Fidelity CMA or something similar?

If the Federal Reserve goes back to setting the interest rate (Fed funds rate) to a range of 0.0 - 0.25% then your Fidelity money market won't be paying anything meaningful. In this circumstance, if the HYSA is offered by a bank that is actually trying to attract deposits, then they may offer a better rate than a money market fund.

Regards,

[rogue_economist]

You are forgetting that bank failures covered by FDIC are not the same as money market failures.

In the former case the transfer is often smooth and funds are available almost immediately.

For a money market that breaks the buck getting the funds back may take a while, its not smooth or immediate. A treasuries fund should still pay out completely, but funds may not be available as easily.

[chrisdds98]

i'm not sure how safe they really are: viewtopic.php?t=433646

HYSA has more regulatory protections

[123]

HYSAs are not obsolete but they may be currently out of favor for many investors who are comfortable with brokerage alternatives.

HYSAs will remain a part of the banking environment because they provide liquidity and attractive rates to savers who want the security of holding assets within a banking environment. Believe it or not some people still look at brokerage firms as something that is not for them.

[lazydavid]

I don't think so. My HYSA has been at 5.00% for almost a year now (was 4.85% before that). It's FDIC ensured for up to $4M, carries no risk, and has same-day ACH to my checking account. It's at the same firm as my taxable account, so not really an extra thing to manage. And they let me slice it up into a bunch of "buckets" for different savings goals, which keeps the wife happy.

SPAXX has a current yield of 4.96%, so basically the same. I guess if I didn't have the other account, using Fidelity CMM would be advantageous for me from a simplicity perspective (since retirement accounts are there), though I believe I'd lose the bucketing feature and therefore the WAF would go down dramatically.

[adam1712]

You are forgetting that bank failures covered by FDIC are not the same as money market failures.

In the former case the transfer is often smooth and funds are available almost immediately.

For a money market that breaks the buck getting the funds back may take a while, its not smooth or immediate. A treasuries fund should still pay out completely, but funds may not be available as easily.

I've been becoming a believer that it's more important to diversify accounts than look for the absolutely safest banking accounts. For money markets, breaking the buck is messy and you do run the risk of getting back maybe 95 cents on the dollar but overall that's been very rare. Any modern account also has cybersecurity risks plus other access risks in an emergency like your login being compromised.

If you have a Boglehead sized portfolio and aren't just starting out, I think two money market accounts often makes more sense than one FDIC insured account. And I don't think having a small amount FDIC insured account is necessarily bad either especially since you can often find a good rate (but often comes with more work of chasing rates). But holding multiple months cash expenses in an account because it's FDIC insured and has a lower interest rate doesn't make a lot of sense to me.

[rogue_economist]

You are forgetting that bank failures covered by FDIC are not the same as money market failures.

In the former case the transfer is often smooth and funds are available almost immediately.

For a money market that breaks the buck getting the funds back may take a while, its not smooth or immediate. A treasuries fund should still pay out completely, but funds may not be available as easily.

I've been becoming a believer that it's more important to diversify accounts than look for the absolutely safest banking accounts. For money markets, breaking the buck is messy and you do run the risk of getting back maybe 95 cents on the dollar but overall that's been very rare. Any modern account also has cybersecurity risks plus other access risks in an emergency like your login being compromised.

If you have a Boglehead sized portfolio and aren't just starting out, I think two money market accounts often makes more sense than one FDIC insured account. And I don't think having a small amount FDIC insured account is necessarily bad either especially since you can often find a good rate (but often comes with more work of chasing rates). But holding multiple months cash expenses in an account because it's FDIC insured and has a lower interest rate doesn't make a lot of sense to me.

Agreed. Everyone should have at least one FDIC insured account but it need not hold a ton of funds. 2-3 months expenses would be reasonable.

Conversely, I also maintain a relationship with a national brick and mortar chain. Yes rates are low, but I think everyone should have a physical bank option.

[LadyGeek]

This thread is now in the Investing - Theory, News & General forum (general discussion).

I also retitled the thread to help with the acronym.

[Mike Scott]

No, HYSA are not obsolete. You can use whatever type of fund suits your purposes.

[exodusNH]

In light of products such as Fidelity's cash management account (CMA), which allows holdings in extremely safe, high yield money market funds, while ALSO able to effectively function as a checking/savings account with ATM and check writing options, are traditional online high yield savings accounts (HYSA) effectively obsolete? In other words, what benefits does a HYSA provide that Fidelity CMA cannot?

I can think of two things:
1. FDIC insurance on deposits for HYSA - While this is true, that a CMA does not have FDIC protection (unless you hold money in the non-competitive bank deposit core position), you have the ability to invest in extremely safe government security MMF, such as FDLXX. My thought is that if the government defaults on its treasury obligations, then something has gone very very wrong and its ability to ensure FDIC insurance on bank deposits might be in doubt as well.

2. The ability to directly buy CD's from the bank, rather than a brokered CD from Fidelity - Is this much of an advantage though? I mean, I don't know much about brokered CD's but don't they function essentially the same as direct bank CD's? Any downsides?

In light of the above, are there any other benefits that I am missing from traditional online HYSA? Or is it a no-brainer to switch to Fidelity CMA or something similar?

Many 10,000,000s of Americans don't own stocks. Out of those that do, most only do so through retirement accounts. Those with taxable brokerage accounts are in the minority.

They are very much not obsolete.

[We're wolves]

In light of products such as Fidelity's cash management account (CMA), which allows holdings in extremely safe, high yield money market funds, while ALSO able to effectively function as a checking/savings account with ATM and check writing options, are traditional online high yield savings accounts (HYSA) effectively obsolete? In other words, what benefits does a HYSA provide that Fidelity CMA cannot?

I can think of two things:
1. FDIC insurance on deposits for HYSA - While this is true, that a CMA does not have FDIC protection (unless you hold money in the non-competitive bank deposit core position), you have the ability to invest in extremely safe government security MMF, such as FDLXX. My thought is that if the government defaults on its treasury obligations, then something has gone very very wrong and its ability to ensure FDIC insurance on bank deposits might be in doubt as well.

2. The ability to directly buy CD's from the bank, rather than a brokered CD from Fidelity - Is this much of an advantage though? I mean, I don't know much about brokered CD's but don't they function essentially the same as direct bank CD's? Any downsides?

In light of the above, are there any other benefits that I am missing from traditional online HYSA? Or is it a no-brainer to switch to Fidelity CMA or something similar?

Many 10,000,000s of Americans don't own stocks. Out of those that do, most only do so through retirement accounts. Those with taxable brokerage accounts are in the minority.

They are very much not obsolete.

No, I know that they are not obsolete in the sense that many millions of people continue to use them. My question is maybe more accurately stated as "Is there a compelling reason to continue to use a HYSA when you have the option of using a Fidelity CMA (or comparable service)?"

[SmileyFace]

10 years ago a lot of us held emergency funds (in some cases large balances) in HYSAs since their interest rates where higher than MMs. Today the opposite is true (e.g. - you CMA example). In the future it could revert so I still keep a small amount in my HYSA (plus I like having a little with FDIC protection).
Obsolete: no. The best place to hold a large set of emergency funds: probably not.

Regarded brokered CDs - do a search herein - tons of threads on brokered versus bank CDs.

[Yarlonkol12]

I use banks for checking accounts and credit cards, I don't see any compelling reason to store assets with a bank over a brokerage, since one has access to better risk equivalent investments than a bank.

A bank might pay you market rates, but they could also change rates and pay you less, perhaps must less, then you need to switch banks which is a huge ordeal. I don't get it

A huge amount of money is held in savings accounts with low yields, much lower than market rate yields

Also many "HYSA" banks have some additional risks, look up the current situation with Yotta bank for example. And they probably were not even getting a yield as good as a treasury backed MMF

[jebmke]

I still use one to pre-fund my quarterly ES payments. Everything is on automatic when I set it up each April. If I croak, my wife doesn't have to do anything about it until the next April. In a pinch, if Vanguard were inaccessible for a short period I could raid this account for working capital.

[bd7]

In other words, what benefits does a HYSA provide that Fidelity CMA cannot?

I'm getting 5.00% on my HYSA and 4.96% in my CMA. The HYSA is not obsolete if it is competitive.

[littlefuse]

I don't think so. My HYSA has been at 5.00% for almost a year now (was 4.85% before that). It's FDIC ensured for up to $4M, carries no risk, and has same-day ACH to my checking account. It's at the same firm as my taxable account, so not really an extra thing to manage. And they let me slice it up into a bunch of "buckets" for different savings goals, which keeps the wife happy.

SPAXX has a current yield of 4.96%, so basically the same. I guess if I didn't have the other account, using Fidelity CMM would be advantageous for me from a simplicity perspective (since retirement accounts are there), though I believe I'd lose the bucketing feature and therefore the WAF would go down dramatically.

If you don't mind: Which HYSA are you using? I'm on BOA and Merrill Edge - with Merrill Edges' clunky CMA. I'm seriously thinking of opening an HYSA to compliment both my BOA checking and Merrill Edge CMA account. Thank you.

[lazydavid]

I don't think so. My HYSA has been at 5.00% for almost a year now (was 4.85% before that). It's FDIC ensured for up to $4M, carries no risk, and has same-day ACH to my checking account. It's at the same firm as my taxable account, so not really an extra thing to manage. And they let me slice it up into a bunch of "buckets" for different savings goals, which keeps the wife happy.

SPAXX has a current yield of 4.96%, so basically the same. I guess if I didn't have the other account, using Fidelity CMM would be advantageous for me from a simplicity perspective (since retirement accounts are there), though I believe I'd lose the bucketing feature and therefore the WAF would go down dramatically.

If you don't mind: Which HYSA are you using? I'm on BOA and Merrill Edge - with Merrill Edges' clunky CMA. I'm seriously thinking of opening an HYSA to compliment both my BOA checking and Merrill Edge CMA account. Thank you.

Wealthfront Cash. I was already using their roboadvisor, so I jumped on it once they introduced it. I should note that with the Fed rate cuts, it's down to 4.25%. But still pretty great compared to the rest of the market.

[3000]

If you wanted to have some money somewhere else in case of an issue at Fidelity using a HYSA does have its advantages. After the recent check fraud issue at Fidelity I decided to keep some money elsewhere and I opened a HYSA at Openbank from Santander. The current APY is 5%. Besides the HYSA at Openbank I have a checking and savings account at Ally bank. I would say I have a banking setup now that works for me.

[tibbitts]

Will anyone think a HYSA is obsolete when it pays say .75% more than the alternatives (cash management, etc.)?

[Helium]

In light of products such as Fidelity's cash management account (CMA), which allows holdings in extremely safe, high yield money market funds, while ALSO able to effectively function as a checking/savings account with ATM and check writing options, are traditional online high yield savings accounts (HYSA) effectively obsolete? In other words, what benefits does a HYSA provide that Fidelity CMA cannot?

I can think of two things:
1. FDIC insurance on deposits for HYSA - While this is true, that a CMA does not have FDIC protection (unless you hold money in the non-competitive bank deposit core position), you have the ability to invest in extremely safe government security MMF, such as FDLXX. My thought is that if the government defaults on its treasury obligations, then something has gone very very wrong and its ability to ensure FDIC insurance on bank deposits might be in doubt as well.

2. The ability to directly buy CD's from the bank, rather than a brokered CD from Fidelity - Is this much of an advantage though? I mean, I don't know much about brokered CD's but don't they function essentially the same as direct bank CD's? Any downsides?

In light of the above, are there any other benefits that I am missing from traditional online HYSA? Or is it a no-brainer to switch to Fidelity CMA or something similar?

#1 is a big one, unless you enjoy having your money being uninsured for some reason.

[gavinsiu]

I recall White Coat Investor saying that MM are not appropriate for business accounts. Some people are very uncomfortable with money with no FDIC insurance. The CMA account seems to have problems integrating with other platforms. I had difficulty linking my CMA to my 529, they thought the CMA account number to be weird.

[sycamore]

2. The ability to directly buy CD's from the bank, rather than a brokered CD from Fidelity - Is this much of an advantage though? I mean, I don't know much about brokered CD's but don't they function essentially the same as direct bank CD's? Any downsides?

Brokered CDs are very similar to bank CDs but it's important to know the downsides. See the wiki article section here: https://www.bogleheads.org/wiki/Certifi ... okered_CDs. Notably, brokered CDs typically pay only simple interest (interest payments go into your settlement account, not back into the CD). And some brokered CDs can be called - you'd want to avoid buying those ones.

Edit: here's a good overview of the pros and cons of bank versus brokerage CDs: https://investor.vanguard.com/investor- ... -types/cds.

[JackoC]

1. I recall White Coat Investor saying that MM are not appropriate for business accounts.
2. Some people are very uncomfortable with money with no FDIC insurance.
3. The CMA account seems to have problems integrating with other platforms. I had difficulty linking my CMA to my 529, they thought the CMA account number to be weird.

1. I was puzzled by that point so searched. The place I found on a BH thread he was referring to inability of any money market set up to accommodate 100's of transactions per month he needed. That's true, even for my 'business' (LLC that holds rental properties) that has only 100's of transactions/year. It wouldn't work w/ any MM set up I know of: it needs a business checking account. But LLC's much larger cash reserves are in VUSXX, under the broad umbrella of 'money market'. There's no particular issue for a business as opposed to an individual owning VUSXX.

2. There's no reason to view the risk of VUSXX and a bank account much differently. This has been chewed over in innumerable threads but bottom line the small risk difference has ambiguous direction depending on the details of particular extreme scenarios and outside of extreme scenario's there isn't a difference. This doesn't apply to 'CMA' set ups if they have gray areas where the money might be neither covered by FDIC nor in very safe assets. A major broker going bust is not that extreme a scenario and some 'fintech' startup going bust not extreme at all.

3. Haven't used actual CMA products, my point is HYSA's v 'money market' more generally. VUSXX is superior to HYSA's for me after tax. But that depends on the market. In the 'zero interest' periods following 2008 crash and COVID VUSXX yielded 0.01%, best HYSA's (or business checking in one case at Amex) were up to 1%. Then I had reserves, personal and LLC, in banks. If that happens again, I'll shift back.

[ClevrChico]

I'm a happy Fidelity customer. The interest earned over an Ally checking account buys a couple of nice meals/month.

[gavinsiu]

1. I was puzzled by that point so searched. The place I found on a BH thread he was referring to inability of any money market set up to accommodate 100's of transactions per month he needed. That's true, even for my 'business' (LLC that holds rental properties) that has only 100's of transactions/year. It wouldn't work w/ any MM set up I know of: it needs a business checking account. But LLC's much larger cash reserves are in VUSXX, under the broad umbrella of 'money market'. There's no particular issue for a business as opposed to an individual owning VUSXX.

2. There's no reason to view the risk of VUSXX and a bank account much differently. This has been chewed over in innumerable threads but bottom line the small risk difference has ambiguous direction depending on the details of particular extreme scenarios and outside of extreme scenario's there isn't a difference. This doesn't apply to 'CMA' set ups if they have gray areas where the money might be neither covered by FDIC nor in very safe assets. A major broker going bust is not that extreme a scenario and some 'fintech' startup going bust not extreme at all.

3. Haven't used actual CMA products, my point is HYSA's v 'money market' more generally. VUSXX is superior to HYSA's for me after tax. But that depends on the market. In the 'zero interest' periods following 2008 crash and COVID VUSXX yielded 0.01%, best HYSA's (or business checking in one case at Amex) were up to 1%. Then I had reserves, personal and LLC, in banks. If that happens again, I'll shift back.

1. I think it was a thread on bank failures. In the thread, one discussion was that banks are actually more likely to failed than MM, but that FDIC has proven to recover the money. This led me to ask the question on why business just use MM instead of bank accounts because business are almost always going to go over FDIC limits. White Coat investor replied that the MM just can't handle the volume of transaction. I assume that this is not an issue for most investors.
2. True. I feel that MM is pretty safe. However, it's hard for people to let go of the FDIC. CMA is a bit of a gray area, the recent issue with Synapse has raise a question if something like this can happen to CMA, but that is doubtful since Fidelity controls a larger share of the ecosystem.
   
   One area, I forgot to point out is the possiblity of liquidity fees for MM. Many of the MM can restrict withdraw during crisis period and impose a 2% withdraw fee. I have not seen this happen though, but it could. Government MM funds are exempt. i am currently holding a good chunk of my cash at a Treaury only money market, mostly because the yield isn't that much lower than non-government MM, are mostly exempted from state tax, is safer than corporate MM.
3. Yes, just pick whatever yields the most aftermarket. That said, I don't bother chasing yields. It's one thing to move money from a bank yielding 0.5% to one yielding 4.5%, but I might not try to switch to an acount for yielding 4.6%.

[dogagility]

I don't see any reason to have a HYSA if also "banking" at Fidelity.

[Tabulator]

I have both a high-yield savings account at a reputable bank and a taxable brokerage account. If I use the brokerage, I manually buy and sell shares of SGOV and similar funds. However, I am discouraged from using the brokerage simply because TurboTax charges me more money when I have sold anything in a given year. So, I go back to the savings account. I have a plan to avoid selling any security in 2025 so I can pay less for TurboTax in 2026. Is there a better answer?

[alexbogle]

I have both a high-yield savings account at a reputable bank and a taxable brokerage account. If I use the brokerage, I manually buy and sell shares of SGOV and similar funds. However, I am discouraged from using the brokerage simply because TurboTax charges me more money when I have sold anything in a given year. So, I go back to the savings account. I have a plan to avoid selling any security in 2025 so I can pay less for TurboTax in 2026. Is there a better answer?

Use freetaxusa instead of turbotax?

[Tabulator]

Thanks for the idea. I got so accustomed to TurboTax that I have an irrational fear of using something else.

Use freetaxusa instead of turbotax?

[littlefuse]

If you don't mind: Which HYSA are you using? I'm on BOA and Merrill Edge - with Merrill Edges' clunky CMA. I'm seriously thinking of opening an HYSA to compliment both my BOA checking and Merrill Edge CMA account. Thank you.

Wealthfront Cash. I was already using their roboadvisor, so I jumped on it once they introduced it. I should note that with the Fed rate cuts, it's down to 4.25%. But still pretty great compared to the rest of the market.

Thanks for that. I see that Wealthfront Cash is not an actual HYSA - but I read about it and I see how it works. I buy brokered CDs at Merrill Edge, and Wealthfront Cash reminds me of how Merrill Edge works with many of their affiliated FDIC insured banks to give the M.E. customer plenty of options.

Do you still have, use, and find beneficial your Wealthfront roboadvisor account?

[lazydavid]

Do you still have, use, and find beneficial your Wealthfront roboadvisor account?

Yes. It's my taxable fund for money we know we don't need anytime soon, but don't have a defined purpose for at the moment. I appreciate the ability to just ignore it while it produces solid gains and the automated TLH saves us some money each year. Our son's 529 is also there, but we will start unwinding that in the fall.

I don't use the direct indexing or smart beta features.