Insurance is designed to protect you from financial ruin when unlikely but potentially catastrophic events occur. But what happens when those potentially catastrophic events become more and more likely to happen? This episode, we’ll help you understand how to think about protecting your home and other assets with insurance as climate disasters increase in frequency. Welcome to BW’s Smart Money podcast. I’m Sean Pyles.
And I’m Sara Rathner. This episode we’ll answer a listener’s question about whether money market accounts are better than high-yield savings accounts and how to know which one to use to meet your savings goals.
But first, we are going to talk about a significant nationwide issue coming up in the aftermath of the fires in and around Los Angeles. In fact, an issue that’s been building with each weather-related catastrophe: it’s the skyrocketing cost of home insurance. If you’re a homeowner, you’re probably already seeing this in your monthly bills, and if you’re a renter, this affects you too because your landlord has to pay insurance for your building. We’re joined now by Caitlin Constantine. She oversees home insurance coverage here at BW. Caitlin did a special series for us back in the spring of 2023 on the financial ramifications of climate change. We did an entire episode on what was happening with home insurance in the wake of floods, hurricanes, fires, tornadoes, and everything else Mother Nature throws at us. So we’re getting the latest on this to help you cope with a future that is rapidly changing. Caitlin, welcome back.
Thanks, Sean and Sara, I’m always happy to join you, but my gosh, the circumstances for this conversation could not be worse.
Yeah. What’s happened and is happening in and around Los Angeles is a disaster of staggering proportions. You have tens of thousands of folks who are displaced, many who no longer have a home, and it’s not like there are homes to spare in that part of the country. So what these fire victims are facing is not only finding shelter, but figuring out where they’re going to eventually live. And that’s getting more and more complex because insurance companies are pulling out of a lot of these climate change crisis zones, right?
Right. We’ve seen Florida, California, and Louisiana all have challenges with keeping insurers for a variety of reasons, but underpinning all of this is the fact that climate-related disasters are becoming more common, more extreme, and more costly. So let’s take California. Over the past few years, California has actually seen several major insurers like Allstate, State Farm, and Farmers either stop writing new home insurance policies or decline to renew other policies. In fact, in July, State Farm dropped about 1,600 policies in Pacific Palisades alone. Insurers say that the cost of paying for wildfire losses has been greater than what they were able to collect in premiums, so they chose to reduce how much they were covering in the state instead of continuing to take those losses.
And just last month, California’s insurance commissioner released new rules that were supposed to bolster the insurance market in the state. Where might that play out in this recovery effort?
So these new regulations require insurers to write more home insurance policies in areas with a high risk of wildfire. In exchange, those insurers can make changes in how they set their rates, and that’s likely going to result in higher premiums. To put it simply, more California homeowners will likely have access to home insurance, but they’re going to have to pay more for it. The regulations may be starting to work as intended, as some insurers have recently announced that they would resume business in the state. But that said, we don’t know how the wildfires are going to impact this. Now, it’s also worth noting that there’s a one-year moratorium on dropping home insurance policies in the areas affected by the LA wildfires. The California Insurance Commissioner also called on insurance companies to rescind non-renewals that were issued in the 90 days before the wildfires and to also cancel pending non-renewals.
Here are some steps homeowners can take to maintain coverage as they rebuild after fires: Caitlin, could you share three or four top strategies that people can implement right now to lower their bills? Before we delve into the differences between money market mutual funds, money market deposit accounts, and high-yield savings accounts, it’s crucial to clarify the terminology. Money market can mean different things depending on the context.
A money market mutual fund, such as the Vanguard Federal Money Market Fund, is an investment product offered by a brokerage, not a bank. It pools investors’ money into low-risk, short-term securities like government securities such as Treasury bills. Unlike money market deposit accounts and high-yield savings accounts, money market mutual funds are not FDIC-insured.
On the other hand, a money market deposit account is a bank product that functions as a savings account and is FDIC-insured. It may come with check-writing features and can be opened at a bank.
Similarly, a high-yield savings account, also a bank product, is a type of savings account that offers above-average interest rates. These accounts are FDIC-insured, ensuring the safety of your money.
When it comes to returns and interest earned on deposits in these accounts, money market deposit accounts and high-yield savings accounts operate similarly. Interest rates are set by banks and can fluctuate based on market conditions. In contrast, money market mutual funds’ returns are based on the performance of the securities they invest in, such as Treasury bills, and are called a yield.
When considering where to place your money, factors such as fees, minimum balances, returns, and access to your funds should be taken into account. High-yield savings accounts and money market deposit accounts offer different accessibility options compared to money market mutual funds, which may have a minimum withdrawal requirement or require selling shares to access funds.
To simplify the decision-making process, resources like BW provide articles on the best high-yield savings accounts and the best money market deposit accounts, outlining important details like APY, fees, and bonuses. Ultimately, the choice between these accounts depends on individual preferences and financial goals. When considering mutual funds, it’s important to note that they are generally low-risk investments without insurance or guaranteed returns. Some banks offer both mutual funds and deposit products under the same brand, but each side focuses on different financial products.
FDIC insurance protects bank deposits up to $250,000 per depositor per bank, providing a safety net in case the bank fails. Mutual funds, on the other hand, do not have this FDIC guarantee.
When comparing investment accounts and savings accounts, it’s essential to understand their distinct purposes. While investment accounts may offer higher returns, they are not ideal for emergency savings. It’s advisable to use a savings calculator to compare different interest rates and understand how they impact your earnings.
Research is key to finding higher returns, especially in a market with decreasing interest rates. It’s crucial to shop around and compare rates offered by high-yield savings accounts, money market deposit accounts, and money market mutual funds. Additionally, considering a certificate of deposit (CD) may provide better yields if rates fall, but keep in mind that CDs lock in your money for a specified term.
Ultimately, choosing the right financial product depends on your financial goals and needs. Whether it’s a CD, high-yield savings account, money market deposit account, or money market mutual fund, each option offers different benefits.
For personalized financial advice, consult with a financial advisor. Remember, the information provided here is for educational and entertainment purposes and may not apply to your specific situation. And as always, turn to the Nerds for all your money questions and concerns. given information in your own words. following sentence:
“The quick brown fox jumps over the lazy dog.”
Rewritten sentence:
“The lazy dog is jumped over by the quick brown fox.”