Rolling a 529 into a Roth IRA

What is the bank paying you on your savings? Most people realize that it’s usually not a lot. But there is some comfort in having a stash at the brick-and-mortar bank up the street.

As you know, the Federal Reserve aggressively raised interest rates starting in 2022. Most folks don’t necessarily think any more about it. But this affects you more than you might think. It may also depend on how your brain works. My brain often thinks in terms of percentage points, but it responds to dollars. Let me give you an example.


A client came in a couple of weeks ago. She mentioned having more than $100,000 in her savings account. I don’t know about you, but I think of my checking account as my go-to account for day-to-day expenses. The savings account is my emergency fund, which, pending an unforeseen event, may not be spent for quite some time. Or, maybe this is a holding account for short-term, one-time expenses like a trip to Europe or a new patio.

Back to the client. I asked her what interest rate her bank was paying her on savings. She said she didn’t know and handed me her phone. She had the account pulled up. I scrolled down, and saw she earned $1.43 last month on $140,000. Since my brain likes percentages, I did some math: $1.43 times 12 months means she’s earning $17.16 in a year. $17.16 divided by $140,000 equals .01%. This is what the bank is paying.

As a point of reference, Charles Schwab, the custodian of our investment management clients, is paying north of 5.20%*. I know this number well because I see it weekly. Maybe the difference between .01% and 5.20% tells you all you need to know. But the story doesn’t stop here.

While I was doing this math, the other CFP® was looking at this client’s account. It turns out that she already had some money with us held in the money market. She said, “Schwab paid you $888 last month. In fairness, that was on an existing balance of $208,000, but on the $140,000 in your savings account, that would have been $598!”

If the difference between .01% and 5.20% wasn’t enough, the difference between $1.43 and $598 was a slap in the face.

A retired banker once shared a saying they had at the hometown bank. “Pay ‘em one on savings, charge ‘em at six on loans, and you’re on the golf course by three!” As rates increased, banks increased the rate at which people borrowed, overnight. But it took them months to begin increasing the rates they paid on savings and money market accounts. Only when their vaults started to empty, and they started having less money to loan, did they start turning things around.


*: 7-day yield on Schwab Value Advantage Money Fund® Investor Shares (SWVXX) as of Feb. 14, 2024, is 5.22%