Navigating High-Yield Savings Accounts: Common FAQs about the Savings Market
Pension Fund has announced that it will be increasing the Benefit Accumulation Account (BAA) interest rate to 4% beginning on October 1, 2023. The market appears to offer plenty of options when it comes to high-yield savings, so is the BAA still your best savings option? We think so, that’s why we’re breaking down some frequently asked questions about the BAA and sharing how it compares to other seemingly similar accounts on the market.
Q: What are the key differences between the BAA and other similar products like Money Market Mutual Funds (MMMF), Money Market Savings Accounts (MMSA), and Certificates of Deposit (CDs)?
A: Here is a simple breakdown of these different types of accounts:
- Typically offers teaser rates in the upper 4% to lower 5% range.
- Rates are often tied to a minimum deposit of new funds.
- Can invest strictly in US Government securities with no credit risk but some products take on credit risk to increase yields.
- Fees and lower interest rates can apply if the account balance falls below the minimum.
- Not FDIC insured.
- Typically offers interest rates from 1-3% and includes fees that are tied to the average daily balance in the account or bonus interest offer; requires large deposits to earn short-term bumps in interest rates or reduced fees.
- Interest rates and fees are not consistent and may vary based on the account balance.
- Long-term average yield is typically lower, around 0.20%.
- FDIC insured up to $250,000.
- Interest rates are based on the deposit amount and agreed-upon time period where funds cannot be withdrawn.
- Penalties or forfeiture of interest may apply for early withdrawal.
- FDIC insured up to $250,000.
- 4% base interest rate with the ability to increase account value even more with Good Experience Credits (GECs) (additional interest earnings when awarded by the board).
- Withdraw funds penalty-free at any time.
- No income or age limits for contributions.
Q: What is the difference in investment strategies for these types of accounts compared to the BAA?
A: The BAA is designed for long-term investment with moderate risk, unlike cash equivalents. Pension Fund also does not charge fees to members' accounts, and the additional interest opportunities through GECs make the BAA a competitive product with the liquidity that members seek. Members enjoy 100% of the upside with no downside market risk when putting their money in the BAA, compared to other high-yield accounts.
Q: What is the typical 10-year return on each of these accounts?
A: The annualized 10-year return on the BAA is 6.67%*. The typical return on that same period for an MMMF, MMSA, and CDs is often less than 1% when calculating fees and penalties associated with the account balance.
When you factor in the additional interest earnings through GECs, it can add up to significant earnings. For example, in 2021 the Board of Directors awarded a GEC of 10.60% making the annual return for that year 13.37%. View our product returns here.
It is important to read the fine print, understand the fees charged on the product, if it is a promotional rate, and what happens if your balance falls below a certain level. If you need help, you can contact the Financial Guides at Your Money Line to help you weigh the pros and cons.
Choosing where to save is a personal choice. At Pension Fund, our mission is to help make savings and retirement possible and to provide you with the resources to make an informed decision. The increased interest rate for the BAA only makes it that much more appealing as a liquid savings option to meet your financial goals. In a marketplace where banks are using teaser rates to attract deposits while reducing lending, we offer a solid and reliable savings vehicle. Regardless of where you choose to invest, saving early and often is important to meeting your goals.
*Returns are based on historical performance and do not guarantee future performance. Annualized return is based on 2022 returns.The accounts maintained to manage and hold the assets of the BAA and interests of the BAA are not subject to registration, regulation, or reporting under the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, Title 15 of the United States Code, or States' Securities Laws. Participants and beneficiaries in the BAA, therefore, will not be afforded the protections of those provisions. Unlike federally insured bank deposits, deposits made to the BAA are not insured or guaranteed by an agency of the United States Government (including FDIC), or any state of the United States.