Why I'm Slowly Moving Money Out of My High-Yield Savings Account

If you're anything like me, there are characteristics of your personality that drive you a little batty but sometimes come in handy. For example, I tend to think (and worry) three or four steps ahead and often wish I could just live in the moment.

However, thinking ahead is why I buy groceries before we get snowed in, have the car's oil changed before setting out on a road trip, and follow financial news so I can get a jump on any expected changes. This article has to do with the latter: Getting a jump on expected changes.

Fixed vs. variable interest

I'm moving money out of a high-yield savings account because it has a variable interest rate and into certificate of deposits (CDs) because they have a fixed rate. This means I'm guaranteed a particular rate until my CD term expires.

A fixed interest rate remains the same for an agreed-upon period of time, while a variable rate can change at any given time. High-interest savings accounts almost always carry a variable interest rate.

High-yield accounts did (and still do) make sense

In 2022, the APYs on high-yield savings accounts hit record highs. Since then, it's made perfect sense to move money from our traditional savings and checking accounts to high-yield accounts. Earning money for doing nothing is one of my secret fantasies.

But rates didn't increase because some sweet soul sprinkled fairy dust on them. They increased as a result of the Federal Reserve's aggressive rate hikes of 2022-2023. In case you're not a card-carrying member of Fed Fans (a term I just made up), allow me to break down how it works.

• Throughout history, inflation has risen and fallen. We're never quite sure when it will happen, but we know it will happen.
• When COVID-19 hit, inflation began to rise. The Federal Reserve (responsible for managing the U.S. money supply) began ratcheting up interest rates in an effort to slow the rate of inflation down. There was nothing new or unusual about this move -- it's how the system works.
• In all, the Fed raised rates 11 times between March 2022 and July 2023.
• As the rate banks pay other financial institutions to borrow money started to rise, banks began to pay a higher rate on banking products, like CDs, money market accounts (MMAs), and high-yield savings accounts. A few banks even paid a small amount of interest on interest-bearing checking accounts.
• As interest rates slowly edge downward, we can expect the interest rates paid on accounts with variable rates to decrease. These accounts include MMAs, high-yield savings, and interest-bearing checking accounts.
• Locking in a fixed CD interest rate now -- while rates are still high -- means I'm guaranteed to earn the rate being promised today rather than settling for a lower rate later. Just as attractive in my situation is that CDs are available for all different terms. Whether I want to lock my money in a 1-year, 5-year, 7-year, or longer CD, it's my choice.

Looking at life through the rearview mirror

As someone who tried to buy their first home as mortgage rates hovered around 18% to 20%, I'm here to vouch for the fact that everything changes. Sometimes, those changes make it harder on consumers (like those ridiculous mortgage rates). Sometimes, those changes are so sweet everyone wants in on the action (like the historically low rates experienced early in the pandemic).

Anyone who tells you they can predict the financial future with 100% certainty is blowing smoke. After all, few could have predicted a global pandemic that would change the landscape of the economy, and the recession experts were sure would happen never actually materialized last year. The best anyone can do is look back at history and try to find patterns that make sense.

And what those patterns tell us is that change is inevitable. When the annual percentage yield (APY) on high-yield savings accounts began to soar, I wanted a piece of the action. But what goes up must come down, and I don't want to be stuck with a variable rate as it plummets to the ground.

Remaining calm and rational

I'm not approaching this transition from high-yield savings accounts to CDs like my hair is on fire. After all, the highest rates I can find today show that the rates on high-yield accounts and MMAs are still a smidge higher than the best rates on CDs.

Instead, I'm keeping my eyes peeled, waiting for the day when APYs are pretty much equal across the board. That's when I'll know financial institutions are dropping their variable rates (even if it's being done at a snail's pace). Once that happens, I'll be opening CDs that guarantee me a fixed rate.

CD interest is fixed -- and so is your money

Opening a CD means committing money for a specific amount of time. I can open a CD based on when I think I may need the money. For example, if I'm saving for a vacation, I might open a 12-month CD. It's important to know what I'm saving for before opening a new CD, because making an early withdrawal can result in a penalty. It'll usually be a certain amount of the interest earned on the account.

Sure, I might be committing my money for a certain period of time, but in return for leaving my mitts off the money over that period, banks offer me a fixed rate that I can count on.

It should go without saying that we all manage money in a different way, and that's smart. It means that we've each learned lessons based on our personal experiences. As for me, experience tells me that I'll feel like I missed out if I don't capture CD rates while they're high.