Banks, “High-Yield” Hype, and Why Your Savings Rate Isn’t a Policy Statement

Jose Alvarez, CFP®, MBA
Sep 30
4 min read

Updated: Oct 21

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What Just Happened and Why It Matters

A bipartisan group of 18 state attorneys general is asking a federal judge to reject Capital One’s proposed $425 million class-action settlement over allegedly shortchanging its customers. The states say existing 360 Savings customers were left at about 0.30% while new 360 Performance Savings customers saw 4%+, and that the deal would let the bank keep the unfair playbook. The settlement is structured as $300 million to class members plus $125 million in “additional interest” credits; Capital One denies wrongdoing. The AGs estimate the average loss was about $717, with typical payouts around $54, and argue the bank could retain $2.5+ billion in avoided interest. Reuters

My opinion: this just reinforces - kind of publicly - what many of us already feel a lot of times... that it's profitable for mega-corporations to take advantage of customers because all they ever get is a slap on the wrist. They know the profit they'll make will outweigh the punishment the government will hand down when caught.

Again... Capital One denies wrongdoing.

Don’t Be Shocked... Here’s Why “Old vs New” Pricing Happens

Speaking as someone who’s been on the inside: banks segment customers. Legacy products get sunset, new products launch with teaser economics, and marketing budgets flow to acquisition. Not to mention that when a bank set up these "specials," they often require you make them your primary bank - set up direct deposit, auto-pay, debit cards...etc. Is it fair? Some disagree. Is it common? Yes. And crucially, banks and credit unions are not fiduciaries to your idle cash; they’re custodians of deposits and they optimize for their own spread - not yours. That’s not moral judgment, it’s business reality.

What Savings Accounts Are (and Aren’t)

Savings accounts exist to hold money safely and keep it liquid. They are not a growth engine. As of mid-September 2025, the FDIC national average savings rate is ~0.40% - a number of large banks can anchor to - while “high-yield” offers are materially higher for new money and new customers. FDIC

So yes, you can earn more, if you’re willing to move. But constantly rate-chasing is a part-time job. The better fix is a cash policy.

Cash Policy Example - Simple, Rules-Based

Define the number.
1. Target 3-9 months of fixed expenses - maybe more for someone within a year of retirement - plus any known lump costs due in the next year (taxes, tuition, a roof).
2. That is your cash line.
Automate the refill.
1. Monthly or quarterly, drop cash back to target using interest, dividends, and small trims from appreciated positions.
2. Above the line, cash is excess.
Give excess a job.
1. Stability (1–5 years): Short/intermediate, high-quality bonds, T-bills, or a ladder that matches upcoming needs.
2. Growth (5+ years): Broad, low-cost equities and other long-horizon assets. Accept volatility, hedge with time.
Use rules, not vibes.
1. Rebalance on a schedule or with bands (for example, ±20% of target weights).
2. Fund withdrawals from cash and Stability during equity drawdowns.

Insurance > Teaser APYs

When you keep meaningful balances, know which backstop you’re relying on:

FDIC (banks): $250,000 per depositor, per bank, per ownership category. Joint accounts allow each co-owner a separate $250,000. IRAs are a separate category. FDIC+1
NCUA (credit unions): Mirrored limits - $250,000 per member-owner, per ownership category; joint and certain trust structures can increase coverage. NCUA+1
SIPC (brokerage): Protection if a broker fails, up to $500,000, including $250,000 cash - not protection against market losses. Many custodians carry excess SIPC on top that can cover up to hundreds of millions. SIPC

Takeaway: Spread large balances thoughtfully across institutions and ownership types, and don’t confuse FDIC/NCUA with market guarantees - or SIPC with FDIC.

Banks vs. Credit Unions: No Halos

Credit unions market themselves as “member-owned,” and many offer great service. But in practice both banks and credit unions run the same product playbook when rates move: attractive new money offers, legacy tiers lagging. Neither structure makes an institution a fiduciary.

What matters is your selection and your process.

About That “Savings Rates Used to Be 11% in the 80s” Point

True.

Headline savings yields were double-digit in parts of the early 1980s.

But so were mortgages and auto loans.

Rate regimes are an ecosystem, not a gift.

Comparing your 2025 savings APY to a 1981 outlier without the rest of the system (inflation, borrowing costs) misses the forest for the trees. What matters is your after-tax, after-inflation outcome across cash, bonds, and equities - organized by time horizon.

Practical Workflow Example

Inventory cash across banks and credit unions
1. Map FDIC/NCUA categories and identify uninsured balances.
Set the cash line
1. Automate refills and move surplus to a T-bill ladder or high-quality bond sleeve inside the right account for taxes.
Consolidate “high yield” accounts
1. Reduce busywork while keeping rates competitive.
Document a withdrawal order (taxable → tax-deferred → Roth, or a tailored version)
1. Coordinate with required withdrawals and Social Security timing.
Keep the Growth sleeve broad, low-cost, and globally diversified
1. Rebalance on rules.
2. Focus on being rational, not emotional

Corrections and Clarifications from the Early Headlines

Average loss vs. payout: The states peg the average consumer loss at ~$717, not $117. Typical payouts modeled around $54 are why they’re urging rejection. Reuters
Settlement composition: The proposed $425M is $300M in cash plus $125M in additional interest credits; Capital One denies wrongdoing. Reuters
Why this keeps happening: Product segmentation and acquisition economics - not a special “bank vs. credit union” moral divide - drive legacy-vs-new rate gaps.
Rate backdrop today: The FDIC national average is about 0.40%, while competitive accounts still show ~4%+ despite a recent Fed cut. FDIC+1

Bottom line

Don’t let outrage drive the plan. Define your cash number, place surplus with intention, protect it with the right insurance framework, and invest the rest according to time horizon.

Banks and credit unions will keep optimizing for their P&L. You should optimize for your balance sheet.

Jose Alvarez, CFP^®, MBA

Founding Advisor

Harvest Horizon Wealth Strategies

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The information presented in this blog is the opinion of the author and does not reflect the views of any other person or entity unless specified. The author may hold positions in any securities discussed in this blog. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. Images included in this blog are created by artificial intelligence. Any resemblance to any existing persons, past or present, is purely coincidental. The information provided is for informational, entertainment, and educational purposes and should not be construed as advice. Advisory services are offered through Harvest Horizon Wealth Strategies LLC, an investment adviser registered with the state of Wisconsin.