Ask Bankrate: When will yields on savings and money market accounts stop falling?

Ask Bankrate is a recurring feature where Bankrate’s experts answer your financial questions. Visit this page for more information on how to submit your question. Click on a question here to jump straight to it.

Questions:

• When will deposit yields stop falling?
• What’s a competitive rate for money market accounts?
• Where should we put our money if not in savings?
• Is it true that it’s harder to get a mortgage or refi?
• Will the 0.5% refi fee be charged on HELOCs too?
• Expecting a 401(k) payout. How should I reinvest it?
• When should I buy an immediate annuity?

Q1: When will deposit yields stop falling?

When do you think high-yield savings and money market interest rates stop falling?

— Robin

Answered by Greg McBride, CFA, Bankrate chief financial analyst: “Savings and money market rates getting close to bottoming out in my view because market rates (short-term Treasury yields) have largely stabilized, but they’re unlikely to rise anytime soon. Most banks are sitting on more deposits than they know what to do with, so they will pay as little as they possibly can on deposits. Even banks that are trying to attract deposits do not need to go overboard because the bar has been set so low. Finally, with the Federal Reserve expecting to keep short-term rates on hold through 2023, these low returns are unfortunately here to stay.”

Q2: What’s a competitive rate for money market accounts?

What’s a good rate for a money market account?

— Chris

Answered by Greg McBride, CFA, Bankrate chief financial analyst: “Due to falling interest rates, the best yielding money market accounts and savings accounts are between 0.6 and 0.8 percent. But this is a moving target and could decline further. Yes, this is pitifully low but it is still 6-8 times what the average bank savings account is paying and 12-16 times what the typical money market mutual fund is paying. Even in a low rate environment, seeking out the best yielding accounts pays off.”

Q3: Where should we put our money if not in savings?

Where should we be putting our money if not in savings? Should you be investing aggressively long term in the market to get the most bang for the buck?

— DF

Answered by James Royal, senior investing and wealth management reporter: “The stock market generally offers the consistently highest returns of major asset classes, and it allows even novice investors to outpace the professionals.

Sure, you can find periods of time where other assets outperformed – think real estate in the early 2000s – but over time the stock market, as represented by the S&P 500, has returned about 10 percent annually. And you won’t even pay taxes on your capital gains until you sell your stock.

But stocks are only a good option if you can think long term, at least three to five years out, and can endure their volatility. Stick to a buy-and-hold mentality and you’ll weather the massive fluctuations, such as 2020’s pandemic-induced mania, and you may even begin to see these declines as a chance to buy more.”

Q4: Is it true that it’s harder to get a mortgage or refi?

I’ve been reading that even though mortgage interest rates are at record lows, lenders are making it a lot harder for some applicants to get loans. Is this true?

— Larry

Answered by Greg McBride, CFA, Bankrate chief financial analyst: “Credit has tightened and so for some applicants, it is harder to get approved. Consumers with credit scores below 680, with irregular employment or a reduced income are definitely finding it tougher to get approved. Borrowers with good credit, proof of income and modest debt ratios are in good shape, though expect more stringent requirements, such as maintaining a larger equity cushion and paying a higher rate if looking to take cash out as opposed to a usual rate-and-term refinance. Even for well qualified borrowers, lenders are doing multiple checks to verify employment and income up until the time of closing given the rapidly changing employment status of millions of Americans.”

Q5: Will the 0.5% refi fee be charged on HELOCs too?

Has there been any talk of hitting HELOCs with this 0.5 percent refinance fee? Or are they considered a totally different loan type?

— Jim S.

Answered by Greg McBride, CFA, Bankrate chief financial analyst: “They are considered a totally different loan type. The reason mortgage refinancings have been subjected to this fee is that Fannie Mae and Freddie Mac buy up mortgage loans, package them into bonds and sell them, guaranteeing that investors will get the regular principal and interest payments even if the borrower doesn’t make them. With all the forbearances, this leaves Fannie and Freddie on the hook for a lot of payments and they have instituted the fee to recoup some of that cost.

HELOCs are mostly held by the lenders on their own books rather than sold into a secondary market, and even those sold into a secondary market do not carry the same guarantees from Fannie and Freddie that exist on first mortgages and prompted the fee.”

Q6: Expecting a 401(k) payout. How should I reinvest it?

I am expecting a 401(k) payout around the end of this year of about $60K. What’s the best way to reinvest this money? I’m a 62-year-old male widower who has a work-matched 401(k) that I contribute 16 percent to. I also have a company stock plan that I purchase $200 of stock every pay period with a company match.

— Brian C.

Answered by James Royal, senior investing and wealth management reporter: “It sounds like you’re withdrawing the money to reinvest in another tax-advantaged retirement account, is that correct? It’s not clear why you’re taking a payout from the 401(k), because you can leave the money in the account even if you leave your employer.

If you do want to leave the money in a tax-advantaged account – which is a good option, unless you need the money to live – consider keeping it in the 401(k) or moving it to an IRA. An IRA will offer you many of the advantages of the 401(k). To do this, you want to be sure you “roll it over” and not take a distribution. If you take a distribution, you’ll probably be hit with taxes, potentially really hurting your nest egg.

As for what to invest in, you’ll have a lot to consider: Do you need the money now or in the next couple of years? Are you happy with the investments you have now? If you need the money soon, you’ll want to invest in very safe assets (such as bonds or CDs), while if you have three to five years or more, you can invest at least some of it in stocks, which fluctuate more. But your best course of action is to speak with a fee-only financial adviser, who can help you get a handle on your specific issues. But you must seek out one who works in your best interest – here’s how.”

Q7: When should I buy an immediate annuity?

When is the best time to buy an immediate annuity?

— Donna S.

Answered by Stephen Kates, CFP: “Immediate annuities are designed to be used within 12 months of their purchase so the best time to buy one is when you are imminently expecting to use that guaranteed income. However, if you don’t expect to need the income for more than 12 months but worry about having the cash sit around, or are nervous about keeping the money invested, you can also research options for a deferred income annuity. A deferred income annuity, in its most basic form, is simply an immediate annuity that is set to start paying you income at a future date (more than 12 months from now). Typically a deferred annuity will offer a guaranteed rate of return on your money for the time between purchase and the income start date.

An annuity is a complex financial product and it pays to shop around before settling on one. Do your due diligence so that you fully understand the pros and cons of the product you are buying. Not all annuities are created equal and some have higher fees than others. Make sure you feel comfortable not only with the terms but also with the representative selling it to you. Annuities are a tool like any other investment and their value is derived from how they are used.

Some suggested questions to ask:

• How are you compensated on this product?
• How long do I have to back out of this purchase if I change my mind?
• How are the fees structured on this product?
• Under what circumstances will the income end?

Hope that helps!”