It’s Time to Dump Your High-Yield Savings Account and Buy This ETF Instead

A high-yield savings account offers risk-free returns, but those returns aren’t as good as you think. That’s because the APYs are subject to taxation, and rate cuts can make these accounts even less enticing. 

However, some high-yield ETFs deliver more competitive yields. You can earn more cash flow and reinvest into the ETF to increase your earnings. The SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA:BIL) is one of the choices that can outperform a high-yield savings account.

Higher Rates for Longer

The BIL ETF follows U.S. Treasuries that expire in 1-3 months. It gives the fund exposure to current rates, but 1-3 month terms allow the fund to lock in higher rates for a little longer than a high-yield savings account.

While the APY on a high-yield savings account can change tomorrow without any notice, the same rule doesn’t apply to BIL. The fund rebalances itself at the end of each month to ensure a good mix of 1-3 month T-bills.

BIL ETF investors also have more time to react to rate cuts. While banks can cut rates immediately, an ETF with 1-3 month maturities gives you more time to compare other options. You can assess high-yield ETFs that offer better yields in exchange for elevated risk while still earning a respectable yield. Then, by the time rate cuts affect the BIL ETF, you can decide whether you want to stay put or move your cash into an ETF with a higher yield.

The Yield

The BIL ETF currently has a 4.31% yield to maturity. Meanwhile, it is very difficult to find a high-yield savings account that offers 4.00% APY. In most cases, you’re getting more mileage out of your cash with an ETF like BIL. 

Investors can also look for other high-yield ETFs that have higher dividend distribution rates than BIL. The BIL ETF invests in relatively risk-free U.S. Treasuries, but you can find higher rates if you look for ETFs that prioritize low-risk corporate bonds.

BIL only has a 0.1356% expense ratio, so you’re still ending up ahead of a 4.00% APY savings account. The BIL ETF and a high-yield savings account both provide monthly distributions. If you get an ETF, you aren’t waiting for your money any longer than you would if you had a high-yield savings account.

More Liquidity and No Minimum Balance Requirements

Many high-yield savings accounts have stringent requirements for their accounts. First, you typically need a high minimum balance that can range anywhere from $1,000 to $100,000 to receive the high yield. That means keeping a lot of money in your bank account, which can limit your long-term returns.

Any surprise bills can also risk putting some people falling below the necessary threshold to receive the high APY. Furthermore, high-yield savings accounts often limit you to six withdrawals per month before they charge additional fees.

With a high-yield ETF, you don’t have to worry about these types of rules. The BIL ETF allows you to earn a 4.31% yield even if you only have $1 to invest. You can gradually build on your ETF investment, which is something you can’t do with a CD account.

Investors will also like the fact that they can sell BIL ETF shares and use the money as they wish at any point. There’s no need to worry about maximum withdrawal limits or falling below the minimum balance requirement for the high APY.

A high-yield savings account offers risk-free returns, but those returns aren’t as good as you think. That’s because the APYs are subject to taxation, and rate cuts can make these accounts even less enticing. 

However, some high-yield ETFs deliver more competitive yields. You can earn more cash flow and reinvest into the ETF to increase your earnings. The SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA:BIL) is one of the choices that can outperform a high-yield savings account.

Higher Rates for Longer

The BIL ETF follows U.S. Treasuries that expire in 1-3 months. It gives the fund exposure to current rates, but 1-3 month terms allow the fund to lock in higher rates for a little longer than a high-yield savings account.

While the APY on a high-yield savings account can change tomorrow without any notice, the same rule doesn’t apply to BIL. The fund rebalances itself at the end of each month to ensure a good mix of 1-3 month T-bills.

BIL ETF investors also have more time to react to rate cuts. While banks can cut rates immediately, an ETF with 1-3 month maturities gives you more time to compare other options. You can assess high-yield ETFs that offer better yields in exchange for elevated risk while still earning a respectable yield. Then, by the time rate cuts affect the BIL ETF, you can decide whether you want to stay put or move your cash into an ETF with a higher yield.

The Yield

The BIL ETF currently has a 4.31% yield to maturity. Meanwhile, it is very difficult to find a high-yield savings account that offers 4.00% APY. In most cases, you’re getting more mileage out of your cash with an ETF like BIL. 

Investors can also look for other high-yield ETFs that have higher dividend distribution rates than BIL. The BIL ETF invests in relatively risk-free U.S. Treasuries, but you can find higher rates if you look for ETFs that prioritize low-risk corporate bonds.

BIL only has a 0.1356% expense ratio, so you’re still ending up ahead of a 4.00% APY savings account. The BIL ETF and a high-yield savings account both provide monthly distributions. If you get an ETF, you aren’t waiting for your money any longer than you would if you had a high-yield savings account.

More Liquidity and No Minimum Balance Requirements

Many high-yield savings accounts have stringent requirements for their accounts. First, you typically need a high minimum balance that can range anywhere from $1,000 to $100,000 to receive the high yield. That means keeping a lot of money in your bank account, which can limit your long-term returns.

Any surprise bills can also risk putting some people falling below the necessary threshold to receive the high APY. Furthermore, high-yield savings accounts often limit you to six withdrawals per month before they charge additional fees.

With a high-yield ETF, you don’t have to worry about these types of rules. The BIL ETF allows you to earn a 4.31% yield even if you only have $1 to invest. You can gradually build on your ETF investment, which is something you can’t do with a CD account.

Investors will also like the fact that they can sell BIL ETF shares and use the money as they wish at any point. There’s no need to worry about maximum withdrawal limits or falling below the minimum balance requirement for the high APY.