No Safety in Current Savings Rates

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In the current dreadful economic environment, online savings accounts may provide security of your principal (as long as you stay within FDIC limits), but the rates can fall out from under you in a second.

The current economic environment is pretty miserable and the only place to hide is in cash.

But, when you hide, don't rely on the interest rate that is advertised.  The reality is that there is no guarantee that you will be getting that rate from one day to the next. 

In this environment, banks will compete for deposits with one another on any given day.  The next day, the economy will deteriorate, short term treasuries will fall (as will expectations about a Fed rate hike), a bank or two may go under, and the rate that is being offered may fall.

Plenty of banks, including Countrywide and One United, have lowered their savings rates over the last couple of days.  As a result, short-term CDs are beginning to look like a much more attractive way to get through this period without seeing the interest rate that you are earning decline immediately.    The exception, of course, is the Everbank program, which is guaranteed for new depositors for 3 months (so is effectively a CD).

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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