Transcription
Jordan thought he had it all figured out when he moved his money to a high-yield savings account paying 4.5%. He'd done the research. He knew traditional savings accounts were a rip-off. While everyone else was earning 0.45%, Jordan was earning 10 times that. He thought he'd solved it. He didn't. He didn't.
His bank was still making more off his deposit than he was. And the thing his high-yield account was doing with his money he could have done it himself and kept the full yield. But here's the part that really stings. His coworker Maya still had $20,000 sitting in a traditional savings account. In 1 year, her bank paid her $76 in interest. That same year, her bank took that $20,000 and used it to earn over $1,200. She got $76. They kept the rest and she thanked them for it. Maya had no idea she was losing money. Jordan thought he'd fixed the problem. They were both wrong, just at different levels. Professor Wealth ran the numbers on both. Here's what your bank doesn't want you to see.
Maya did everything she was told to do. She saved 6 months of expenses. She kept it in a savings account at a big national bank. She checked her balance every month and saw a small interest deposit. It wasn't much, a few dollars here, a few dollars there, but it felt responsible. It felt safe. Her savings account was paying 0.38% APY. That's the national average right now according to FDIC data. On $20,000, that's $76 a year, about $6.33 a month, not even enough to buy lunch.
Now, Maya probably never thought about what her bank was doing with that $20,000 while it sat in her account. She probably assumed it was just uh sitting there in a vault somewhere waiting for her. It wasn't. The moment Maya deposited that money, the bank put it to work, not for her, for them. Here's what Maya's bank did with her $20,000. The first thing they did was lend it out. That's the core business model of every bank in America. They take your deposit, pay you a fraction of a percent, and lend that money to someone else at a much higher rate. The difference between what they pay you and what they earn is called the net interest margin. And right now, the average net interest margin for US banks is 3.39%. That's the highest it's been since 2019. Let's put that in real numbers. Maya's bank paid her 0.38%. They earned an average of 3.39% on the money they lent out using her deposit. On $20,000, that's a spread of about $602 a year that the bank keeps. Maya got $76. The bank got $602 from the same $20,000.
But that's just the average. Let's look at where the really wide margins are, credit cards. The average credit card APR in the first quarter of 2026 is 21%. Maya's bank takes deposits like hers, pays her 0.38%, and turns around and lends that money to credit card holders at 21%. That's a spread of over 20 percentage points. On $20,000, if the bank allocated even a portion of Maya's deposit toward credit card lending, the profit on that slice alone dwarfs what they paid her for the entire year. Auto loans. The average rate on a new car loan right now is around 7.5%. Mortgages, around 6.8%. Personal loans, around 12%. Every one of these lending products is funded in part by deposits like Maya's, and every one of them earns the bank multiples of what Maya receives.
Then there's the Treasury trade. And this is the one that should make you pause. Maya's bank takes a portion of her deposit and buys short-term US Treasury bills. Right now, 3-month T-bills are yielding around 3.6%. The bank buys those Treasuries with Maya's money, earns 3.6%, and pays Maya 0.38%. That's a 3.22% spread on an asset that Maya could buy herself. The bank is literally acting as a middleman between Maya and the US government and charging her over 3% for the privilege.
And then there are the fees. American banks collected an estimated $12.1 billion in overdraft fees, NSF fees, ATM fees, maintenance charges, and other service fees in a single year. JPMorgan Chase alone collected over $1 billion in overdraft fees in 2024. Wells Fargo, nearly the same. These fees are charged to the same customers whose deposits fund the banks' lending operations. Maya's $20,000 is part of that machine. Not to talk of the interchange revenue every time Maya swipes her debit card, the bank earns a cut from the merchant. Not to talk of the float the bank earns on pending transactions, holding your money for a day or two before it actually clears. Not to talk of the anonymized data from your spending patterns that banks package and share with marketing partners. Every one of these is another channel of profit built on top of Maya's deposit. Add it all up and the picture is clear. Maya's bank didn't hold her money. They rented it. They paid her $76 a year for the right to use her $20,000 however they wanted. And she thought she was earning interest.
Now let's talk about Jordan. Because Jordan is the person watching this video thinking, I already knew that. That's why I moved my money to a high-yield savings account. And Jordan's not wrong. He's ahead of Maya, way ahead. His high-yield savings account is paying 4.5% while Maya's is paying 0.38%. On $20,000, Jordan is earning about $900 a year compared to Maya's $76. He did his homework. He made the switch. He's earning 10 times more than the average saver. So what's the problem?
The first problem is that 4.5% might not be what Jordan is actually earning. A lot of high-yield savings accounts advertise up to a certain rate. That up to is doing a lot of heavy lifting. Some accounts use tiered rate structures where the top rate only applies to the first $500 or $1,000. After that, the rate drops. Others offer a promotional rate for the first 90 days, then quietly reduce it. Jordan saw 4.5% in the headline. His effective rate might be lower.
The second problem is the tax treatment. Interest earned in a savings account, whether it's a traditional account or a high-yield account, is taxed as ordinary income. That means federal taxes plus state and local income taxes. If Jordan is in the 22% federal bracket and lives in a state with a 5% income tax, he's losing over a quarter of his interest to taxes. His $900 becomes roughly $657 after tax.
The third problem, and this is the big one, is what Jordan's high-yield savings account is actually doing with his money. Where do you think the bank gets the returns to pay Jordan 4.5%? They're doing exactly what we just described with Maya's bank. They're lending it out. They're buying Treasuries. They're running the same profit machine. The only difference is that a high-yield savings account shares a bigger slice of the profit with the depositor. But it's still a slice. The bank is still the middleman, and the middleman is still taking a cut.
Here's the question Jordan never asked. If the bank is using my money to buy Treasury bills and earn 3.6%, why don't I just buy the Treasury bills myself? Professor Wealth ran the numbers. Same $20,000. Same 12-month period. Three different scenarios.
Scenario one. Maya's traditional savings account at 0.38% APY. Gross interest earned, $76. After federal and state taxes, she keeps roughly $55. That's what 6 months of responsible saving earns her in a full year.
Scenario two. Jordan's high-yield savings account at 4.5% APY. Gross interest earned, $900. After federal and state income taxes at a combined 27%, he keeps about $657. A huge improvement over Maya. But here's the thing. He's paying taxes at both the federal and state level on every dollar of that interest.
Scenario three. A short-term Treasury bill ETF like SGOV. SGOV's 12-month trailing yield as of April the 2026 is 3.95% with a 30-day SEC yield of 3.55%. On $20,000, that's approximately $790 in gross income over a year at the trailing yield, or about $710 at the current 30-day rate. Now here's where it gets interesting. Interest from US Treasury securities is exempt from state and local income taxes. That's federal law. So Jordan pays federal plus state taxes on his $900. The SGOV investor pays only federal tax on their $790. After taxes, the SGOV investor keeps roughly $616 at the trailing yield. And that's without paying any state or local tax.
Now you might look at that and say, wait. Jordan's high-yield account still comes out slightly ahead in raw dollars. And in this specific comparison, yes. 4.5% is higher than 3.95%. But here's what that comparison misses. Jordan's 4.5% is an advertised rate that can change at any time without notice. The bank can drop it to 3.5% next month and send him an email about it. SGOV's yield tracks actual Treasury bill rates set by US government auctions. It's transparent. It's market-driven. There's no bait and switch. Jordan's 4.5% is subject to state income tax. SGOV's yield is not. In a high-tax state like California or New York, that exemption alone can be worth the difference. And Jordan's 4.5% is still the bank acting as a middleman. SGOV cuts the bank out entirely. You're lending directly to the US government through Treasury bills and keeping the full yield minus a 0.09% annual fee.
The point isn't that one option is always better than the other in every scenario. The point is that Jordan never knew he had the option. He thought the high-yield savings account was the finish line. It's not. It's a better seat in the same machine.
So, here's what Professor Wealth recommends. And it's simpler than most people think. First, keep your checking account. Don't close it. You still need it for daily spending, rent, bills, groceries, whatever comes in and out regularly. This isn't about changing how you spend money. It's about changing where your idle money sits.
Second, identify your idle cash. That's your emergency fund, your savings, cash waiting to be invested, money you're setting aside for a down payment or a big purchase. This is the money that's sitting in a savings account earning next to nothing while your bank earns 10 to 50 times more on it.
Third, here are your options to move that cash. Option one, a Treasury bill ETF like SGOV. You buy it through any brokerage account, Robinhood, Schwab, Fidelity, Webull, whatever you already use. You buy it like a stock. The ETF takes your money and invests it in US Treasury bills that mature in 3 months or less. Every month you get paid a dividend. That's the interest income. Right now, that's yielding around 3.55% to 3.95% depending on which measure you look at. When you need your money back, you sell it during market hours. The price stays right around $100. It's designed that way. The expense ratio is 0.09% a year. On $20,000, that's $18 a year. And your distributions are exempt from state and local income tax.
Option two, treasurydirect.gov. This is the US government's own website where you can buy Treasury bills directly. No middleman at all. No brokerage, no ETF, no expense ratio. You set up an account, link your bank, and buy T-bills at auction. They mature, you get your money back with interest. The downside is that it's less liquid than an ETF. You're committing to a maturity date of 4 weeks to 52 weeks. But if you don't need instant access, this is the purest version of cutting out the middleman.
Option three, a money market fund. These are offered by brokerages like Fidelity, Schwab, and Vanguard. They invest in short-term government securities and other high-quality short-term debt. They offer daily liquidity. You can pull your money out at any time. Yields are currently competitive with high-yield savings accounts. And if you choose a Treasury-only money market fund, you get the same state tax exemption as SGOV.
Now, here's the objection most people raise. But, my savings account has FDIC insurance. And that's true. FDIC insurance covers up to $250,000 per depositor per bank. If the bank fails, the government guarantees your money. That's a real protection, but think about what you're comparing it to. Treasury bills are debt issued by the same US federal government that backs the FDIC. When you buy a Treasury bill, you're lending money directly to the government. The risk of default is essentially zero because the government has the ability to print money to pay its debts. You're not giving up safety when you move from a savings account to Treasuries. You're moving from a government guarantee on your bank to lending directly to that same government. In some ways, it's more direct.
The second objection, I need instant access to my money. Fair. And that's why you keep your checking account funded for daily needs. For your emergency fund in something like SGOV, yes, there's a one-to-two day settlement period when you sell, but be honest, when's the last time you needed $20,000 in cash within 60 seconds? In a real emergency, one to two business days is usually fine. And the difference in yield while you wait for that emergency to happen is hundreds of dollars a year.
Maya was responsible. She saved her money. She kept it in a bank. She checked her balance. She did everything right. By the rules she was taught, Jordan was informed. He moved to a high-yield savings account. He earned 10 times what Maya earned. He thought he'd cracked the code. But neither one ever asked the real question. What is my bank doing with my money? And can I do it myself? The answer is yes. Your bank takes your deposit, buys Treasuries, lends it out at 7%, 12%, 21%, and pays you a fraction of a percent. The smartest move isn't finding a better savings account. It's asking why you need one at all.
If this video showed you something you didn't know was happening with your money, subscribe to Wealth Logic and hit the notification bell. We break down the hidden math behind the financial decisions you face every day. And the next video, it's one you don't want to miss.