Is your bank “scamming” you?

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Monday. Today is Monday, May the 4th.

May the 4th be with you — for those of us nerds who celebrate that little self-made holiday…

Today I want to talk about one of my favorite things to talk about, and one of the biggest investing blunders I see people make at every age — 30, 40, 50, 60, 70, 80.

I feel a responsibility to ring this bell once every few months.

The Fed Vs. Banks

On Wednesday, the Federal Reserve kept rates steady at 3.5% to 3.75%.

The Fed rate drives yields on savings accounts, CDs, money market funds, T-bills — a whole range of products.

But here is what happened just days later.

Capital One, Synchrony Financial, Marcus by Goldman Sachs, and Ally Financial all dropped the APYs on their high yield savings accounts.

The Fed held steady. These companies paid you less.

It used to be that banks moved in lockstep with the Fed — rates go up, they pay you more; rates go down, they pay you less.

That is not how it works anymore.

"Savings Account" Is a Marketing Term

Let me be direct about something.

A savings account is a fake name.

It's a marketing term.

Bank of America pays 0.01%.

JP Morgan pays 0.01%.

Citibank pays 0.18% — and that's only because they're looking for business.

Meanwhile, inflation is running at least 3%.

So think about what that means in practice.

Every $100 you have sitting in a Bank of America savings account is worth $97 by the end of the year.

Bank of America will add a penny — $97.01.

It's crazy.

What To Do Instead

You need your money growing at least at the inflation rate while you hunt for good investment opportunities.

Here is what I do, what I tell my friends to do, and what I've recommended on this channel many times.

The Schwab Treasury Money Market Fund — symbol SNOXX.

It pays 3.4%.

I am not paid by Schwab to say this. Not at all.

But this is where I keep my own cash that isn't deployed in the market.

It invests only in short-term US government securities — T-bills that mature in 30, 60, or 90 days.

Short duration means low volatility.

It pays income monthly.

And because it is US government debt, it is technically safer than a bank.

You don't have to use Schwab specifically — every brokerage has a product like this.

Find it at your firm and move your cash there.

The Simple Math

That $100 sitting at Bank of America turns into $97.01 by the end of the year.

That same $100 in SNOXX turns into $103.40.

Over time, that difference is enormous.

You always see movies about guys who stash a hundred grand under a rock and come back 30 years later to find it.

I've got news for you — that hundred grand is not worth what it was worth 30 years ago.

Currency depreciates.

It always has.

At a bare minimum, your cash needs to be keeping pace with that depreciation while you wait for the right opportunities.

SNOXX does that.

But parking cash in T-bills is just step one.

Okay, I'm done lecturing.

I don't want to sound like your cranky grandfather.

But that's what you should do.

Have a great day.

I'll see you tomorrow.

“The Buck Stops Here,”