NEW YORK–With most checking accounts continuing to pay little to no interest, an increasing number of consumers are moving their day-to-day funds to brokerage accounts in order to get higher returns, according to a new report.
Fidelity, which is the largest 401(k) plan provider in the country, has seen a double-digit percentage increase in the number of people using cash-management accounts over the last three years, a spokeswoman told the Wall Street Journal. The report noted those money-market accounts let customers earn competitive interest on their cash without sacrificing many of the key features of traditional banking.
Charles Schwab, Robinhood Markets, Wealthfront and others offer similar accounts.
According to the Journal, some money-market accounts currently pay as much as 3.8% annualized interest, rivaling some high-yielding savings accounts. Like checking accounts, they offer direct deposit, debit cards, bill payment and paper checks, the report added.
As CUToday.info has reported, credit unions have also been increasing rates on deposit accounts, although much of that activity has been centered on certificates.
“Traditional checking accounts paid an average of 0.05% as of the end of last year, according to Federal Deposit Insurance Corporation data,” the Journal reported. “With inflation running at more than 6% over the last 12 months, that means cash sitting in checking accounts is losing purchasing power by the day.”
In all, investors have added about $135 billion into global money-market funds over the four weeks ending Jan. 18, according to data from financial data provider EPFR that was cited by the Journal.
Lost ‘Billions’
The Journal report, noting that many Americans have lost out on “billions of dollars in potential interest” (as reported by CUToday.info here), acknowledged that many of the brokerage accounts are less practical than standard checking accounts and some come with higher fees.
In the case of Fidelity, the Journal added that because the company partners with many banks, depositors can have more than $1 million in insured deposits compared with the $250,000 maximum at individual banks and credit unions.
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