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1-Year CD Rates from Online Banks 2022

Certificates of deposit (CD) rates from online banks are often above average if you are willing to open and manage your account using the Internet. Most online banks offer an online application and money can be transferred to fund the CD via an electronic transfer, check, wire, or credit card. You can view a financial snapshot of any online bank by clicking on its name and then the Financial Details tab.

Highest One-Year Online CD Rates - January 16, 2022

1 Year CD National Average: 0.40% ?

Advertiser Disclosure

Early Withdrawal Penalty is all interest earned.

| Dec 21, 2021

I can positively state that poor customer service is the reason why businesses sink. Pentagon Federal online media agent is limited and most times useless. The wait time on the telephone to be asked nam...

| Jan 15, 2022

It would be insanity to lock into a 1-year CD at 0.85 with this "bank" when they are paying 0.75% on a savings account and the Fed is going to hike to at least 1% by the middle of the year (and both CD and...

| Nov 13, 2021

Rate is not unattractive in this environment but I will wait until January or February and see where things are then.

| Jun 21, 2021

Bad experiences with this bank and maturing CD's. I wanted the funds returned to my external bank and not rolled over into another CD. After several phone calls, and messages sent through their secure mess... Read More

| Dec 16, 2021

This is the one. I've been a customer for many years. Never a problem. Great service. Rates are always consistently among the best. No need to constantly move. Read More

Early Withdrawal Penalty is 180 days interest.

| Nov 9, 2021

Quirky website and lousy rate, but this is where we are what you need to do to avoid the zero-point-zero-one. Read More

| Apr 29, 2021

You will not collect any interest and lose a good chunk of the principal. They don't take all of it you will still recover some money. The early withdrawl clause is always part of the terms you acknowled...

Warning: Early Withdrawal Penalty is 2% of the account balance.

| Apr 12, 2021

Frustrating. The initial application form is a breeze. Then the problems start. Many hoops to jump through.

| Oct 26, 2021

Not the easiest process and you really need to think twice before joining a credit union to make a little more on your cash. For me it was worthwhile and Cathy was super helpful.

Early Withdrawal Penalty is 180 days interest.

| Apr 22, 2015

Hello, I am interested in a line of credit against my home. I have a high interest credit card that I want to move to this credit. I have a wells fargo mortgage which is only a few years old which I do no...

| Jan 3, 2022

Perfect credit and I was denied opening an account with NO explanation. Is this bank legitimate or some sort of scam? Read More

| Mar 4, 2021

They are liers. Please don't open their credit cards to avoid being taking advantage of!!! I hope they bankrupt SOOOOOON. Read More

| Nov 6, 2021

Website agonizingly SLOOOOOWWW. Only 3 linked external accounts allowed.

| Jun 1, 2021

Update: STAY AWAY FROM THIS BANK! They have no clue how to run an online bank. This bank is not ready for prime time. Nothing but problems. Customer service is dismal at best.

| Feb 7, 2021

I cannot comment on Bankdirect, but I can comment on the Bask Bank subsidiary. Opening this account to earn AAdvantage miles is the best move I've made in years! I am getting 100,000 frequent flier miles... Read More

| Jul 16, 2021


Warning: Early Withdrawal Penalty is the greater of: 90 days interest or all interest earned.

| Apr 9, 2021

Unprofessional in every way imaginable.

| Nov 8, 2021

As of 11/03/2021 online savings rate increased to 0.50%

| Jul 15, 2021

I finally closed my account. Was great back in the day as everbank but now it is a joke in every way. Read More

| Jan 3, 2021

This is the worst online banking I have seen. Without any warning they restricted access to withdrawals to $1000. Representative said they implemented on ALL accounts for ALL customers due to “fraud”... Read More

| Nov 18, 2017

This is a decent account until you need to withdraw something and then it is hell on wheels. Read More

| Jan 23, 2021

In terms of service, you cannot do anything online. On every other bank, you can message someone online and get a quick response. You need to call Synchrony and speak with someone in the Philippines. N... Read More

| Sep 14, 2020

two thumbs up Read More

| Nov 5, 2021

I opened an interest checking account with Ally after reading all the glowing comments online. My first experience with Ally was anything but glowing. The customer rep tried to charge me $15 for a debit ca... Read More

| Feb 28, 2021

ACH transfers limited to $3,000, unsecured website, emailing acct numbers, hours to reach customer service. Need not say more.

Early withdrawal penalty is 6 months interest.

| Aug 25, 2020

Bank is owned by a Florida bank and yet I wasn't able to open an account because I live in Florida. Go figure! Read More

| Dec 6, 2021

Works fine, but I wish interest were credited monthly and not quarterly.

| Jan 7, 2022

Whatever you are gaining by having this account (0.05% over Ally or Marcus) you are losing when they take a week to make a simple bank transfer. Read More

| Mar 25, 2021

Completely excessive number of customer service phone calls after setting up account. Well meaning, but over the top.

| Jan 4, 2020

I am surprised at all the negative reviews. I have had several large CDs at this bank for several years, and I've gotten the best customer service I've ever gotten at any bank in the last 45 years. Read More

| Jul 17, 2021

I've been with this bank for 6 months and have not had any problems. Bill pay works good. The 24 month investing CD is another vechile I use. Rates are above average considering the national rate. I'd reco... Read More

Early Withdrawal Penalty is 180 days interest.

| May 10, 2021

Dollar Savings Direct is as close as anything gets to a scam without being labeled a scam. CDs renewing below market rates at no notice. Savings rates going above market levels and then way below (again no... Read More

| Dec 13, 2019

yes good

| Jun 25, 2020

Nope. As with the CIT quote 1.25% APY is a bit optimistic. Banesco's site offers .90%.

| Jul 21, 2020

Opened account a month ago. I've already seen the rate fall a couple of times, but have no other complaints. Easy process and a clear easy to use site (unlike Ally where I was before). Read More

| Dec 8, 2020

Everyone here in Boston raves about Salem Five but it is shithole operation filled with nasty entitled people. As for this online savings product, the fees are ridiculous, the transfer charges are obnoxiou... Read More

Warning: Early Withdrawal Penalty is 12 Months of Interest

| Jun 20, 2018

Their website says the offer is going away tomorrow at 9AM EST. Hurry! Read More

OneWest Bank, a division of First-Citizens Bank and Trust
0.30% $1,000 Learn More

Early Withdrawal Penalty is 1% of principal.

| Sep 6, 2019

Went to bank yesterday this is not a good rate. Needs to be updated. Read More

| Oct 13, 2021

Good for savers. Easy to transfer funds in and out, not paying high transaction processing $ or being limited to low amounts per day. Does not subject applicants to very much ID interrogation and apparent... Read More

| Jul 3, 2019

Just set up an account. Don't know long term yet, however they were (Kelsey) a dream to work with.

| Aug 13, 2019

I filled out the application 10 days ago answering all questions and sent a file with a copy of my drivers license to Western Bank. I received an email saying that a banker would call me within one busines...

Early Withdrawal Penalty is 181 days interest.

| Dec 8, 2021

Marcus (GS) and Barclay high yield savings both 0.50%. Read More

| Aug 3, 2020

There is a lot to like about this account. American Express is a real organization and you are not playing with a bunch of amateurs like with a lot of these banks. However, they will be sure to lower the ... Read More

| Dec 5, 2020

I know rates are variable, at their discretion*, but in the time frame of 9 months their rates have dropped to 1/3 of what they were ! is that what some call a teaser rate in the beginning ??? Read More

| Dec 28, 2021

I made a deposit and issued a check which arrived and they bounced it although they claimed the deposit cleared which left us spending Christmas pennyless. We depended on that money to buy ourselves food ... Read More

| Jul 28, 2020

Dropped rates again with restrictive transfer limits and poor service. Better rates and liquidity elsewhere. Beware!!! Read More

| Jan 15, 2022

I've done some work with these guys. This is a New Jersey-based bitcoin ponzi scheme run by a bunch of 30-something Wall Street throw aways. If you must chase 51 bps, I suggest you do it somewhere else. Read More

| Sep 20, 2021

Run for them hills and quickly too I might add if you want to keep more of your money than you put in their process for any length of time. If they can run a automatic payment to come out of my account ev...

| Aug 7, 2020

Had a car loan with them. Paid it off because I was selling the vehicle. They told me it would take 10 business days to clear the transaction (it was immediate via electronic) and was out of my account th... Read More

| Jul 9, 2021

"Vio" application process is defective, I used to work on bank security so truthfully responded. Requires documentation which I sent in at length and then got denied because of unknown reasons. Have excell... Read More

$1,000 minimum deposit to open an account. A penalty may be imposed for early withdrawal. Account fees may reduce your earnings.

| May 21, 2021

avoid this Read More

Early Withdrawal Penalty is 270 days interest.

| Apr 10, 2021

I opened an account a couple of years ago and had a dreadful experience. I saw two weeks ago that the rate was better than at Citizens so I closed that account for this one. I cannot access my money now or... Read More

Ohio Catholic
0.15% $100,000 Learn More
0.10% $500 Learn More

| Jan 10, 2022

Opened for the higher rate. Somewhat tricky to get the account opened, and I am disappointed to learn that albeit a Massachusetts bank it does not do DIY so cannot deposit over 1/4 mil.

Ohio Catholic
0.10% $500 Learn More

| Oct 28, 2021

The website is easy to use. The savings rates for an online bank are terrible. Read More

| Apr 18, 2018

Worst experience of my life. Did not fund and gave $25 to my own charity. Read More

| Feb 24, 2020

I had been with USAA for 20 years. Had my checking, savings, auto and renters insurance and 2 credit cards with them. I work in the service industry and make a good portion of my income in cash tips. For 4... Read More

All rates listed are Annual Percentage Yield (APY). The Min listed is the minimum deposit account balance required to obtain the rate listed.

Summary: Today's Highest Online CD Rates - January 2022

Bank Institution Product Term Interest Rate (APY)
Pentagon 1-Year 0.85% APY with $1,000 minimum
Live Oak Banking Company 1-Year 0.75% APY with $2,500 minimum
Colorado Federal Savings Bank 1-Year 0.73% APY with $5,000 minimum
Pentagon 3-Year 1.00% APY with $1,000 minimum
Popular Direct 3-Year 0.95% APY with $10,000 minimum
Colorado Federal Savings Bank 3-Year 0.92% APY with $5,000 minimum
Pentagon 5-Year 1.30% APY with $1,000 minimum
Connexus 5-Year 1.21% APY with $5,000 minimum
Comenity Direct 5-Year 1.10% APY with $1,500 minimum


One-Year CD - Online Banks 2022

Certificates of Deposit (CDs) are offered by most banks in a variety of maturity dates. The 1-year rates in the table above are listed in descending order based on Annual Percentage Yield (“APY”) which is the rate of return that you will earn, when adjusted for compounding, over a 12 month period, and the way in which banks are required by US banking regulations to advertise their CD rates.

A certificate of deposit represents a time commitment between a depositor (someone who has money to put in the bank) and a bank. The depositor agrees to leave a specified amount of money in the bank for a set period of time. The bank agrees to keep the money safe and to provide a fixed rate of return.

A 1-year CD has a very brief time commitment and can also generate a rate of return above the prevailing savings rate. Therefore, many people use 1-year CDs to slightly augment their rates of return over savings with only slightly more risk than they would have if they were entirely in savings accounts and money market accounts.

FDIC Insurance

Provided the bank is FDIC-insured and the deposit amount is within FDIC limits, the principal is also secured by an agency of the United States federal government against loss. Further information about FDIC insurance is found in this article and if you have specific questions about your own circumstances you should use the FDIC’s Electronic Deposit Insurance Estimator.

CD Risk

The principal of a CD is safe and insured as long as the deposit amount is FDIC limits. Interest that accrues and is paid or deposited to the principal also is safe as long as the total balance remains within FDIC limits.

A CD however bears two significant risks:

  • Liquidity risk

    If you think you may need access to your principal during the period of the time commitment for a major purchase or an unforeseen expense, CDs are generally not a good place to store money. The terms of most CDs outline the penalty that will be assessed in order to access your capital. This penalty is usually assessed in terms of time periods. For example, a common penalty on a 1-year CD is 3 months, although you should always check this carefully in the terms and conditions before opening a CD as it could be longer. Banks and credit unions are not obliged to offer an early withdrawal penalty, and may change or remove or even refuse to honor the early withdrawal penalty in their paperwork. For further details, please read this article. BestCashCow never recommends a strategy involving the purchase of a CD when you have a high likelihood that you will need your capital.
  • Inflation risk

    Since CDs are considered a very safe investment when you stay within FDIC and NCUA-limits, they often do not pay much over the anticipated rate of inflation, and can often pay under this rate. Were interest rates to rise (or the inflation rates to rise), the real or inflation -adjusted value of your CD can drop over time, especially when you factor in the tax consequences of ownership of a CD. In the event of rates rising, you may be able to use the early withdrawal penalty to get your principal but for the reasons mentioned above, BestCashCow does not recommend relying on such a strategy.

Be sure to think about how CDs fit into your overall portfolio objectives.

CD Laddering

An effective strategy used by many to bolster their savings strategy is to own CDs with various maturities. In other words, a depositor with $400,000 and put $100,000 in a 3 month CD, $100,000 in a 6 month CD, $100,000 in a 9 month CD and $100,000 in a one-year CD, then your liquidity risk in highly diminished because you are always near maturity on one of your CDs. (Note that no more than 2 of these CDs should be at the same bank in order to avoid exceeding FDIC limits).

The reality is that we are in a very low interest rate environment, and any CD with a maturity of less than 1 year is going to pay below, perhaps well below, the prevailing rates in the leading online savings accounts or at brick-and-mortar banks. Therefore, the strategy outlined above would be largely absurd in the current environment.

A laddering strategy that would make more sense for the same depositor who might otherwise hold $400,000 in cash would be to put $100,000 in a one year CD every three months. Liquidity risk in the same way is diminished as the depositor is never more than 3 months from maturity, yet the depositor is picking up some small improvement over the best savings rates than where all of his money to be in cash.

Laddering strategies can also involve longer term CDs, but one that involves terms as little as 1 year can improve on the savings rates with minimal impairment to your liquidity.

More information on CD laddering is available in this article.

How Interest is Paid

The method of distributing the interest earned on a CD varies by bank. Some banks pay interest monthly, other semi-annually, and others at the maturity of the CD. In general, online banks pay the interest electronically either by adding it to the principal balance or with an ACH transfer back to the depositor's primary linked checking account. Other online banks may pay via a check in the mail.

Interest Rate

Currently, the most competitive banks offer 1-year rates that are slightly above the top online savings and money market rates. Depositors need to decide if they want the fixed rate of the CD or the flexibility of the savings account (savings accounts do not come with any term time requirements).

In a rising rate environment, it is generally better to keep money flexible and liquid and put it into either short term CDs or savings or money market accounts.  In a falling rate environment, it is generally better to lock the rate using a CD or some other fixed rate investment. In a stable rate environment, you may be able to collect a small premium in exchange for your loss of liquidity.

Online banks generally offer CDs available to residents of any of the 50 states. The CD must be opened online and funded either by online transfer or by mail.


What are CD rates?

CD rates are the fix rate that the bank pays a depositor for entering a CD for the entire term of a CD. They are expressed in annual percentage yield (“APY”) terms, so that they are standardized. $100,000 invested in a one year CD at 1% will be worth $101,000 at maturity in exactly 1 year. $100,000 invested in a two-year CD at 1.50% will be worth $101,500 in exactly 1 year and worth $103,022.50 at maturity (assuming the interest is not paid out before maturity, but is added to the principal). Please see BestCashCow’s Savings & CD Calculator to better understand the magic of compounded interest over time.

Do CDs Pay Interest Monthly or Yearly?

When opening a CD, it is important to consider how interest is credited or paid. Interest can be credited to the CD monthly, quarterly or annually. For those CDs of one year or less, interest may be credited only at maturity.

When interest is paid, the CD holder may have arranged for the interest to be mailed to them as a check. The other option is for the interest to be added to the principal of the CD.

Regardless of how and when interest is paid, it is required to be expressed (standardized) by all banks in the form of an annual percentage yield (“APY”) rate.

How Is Interest on CDs Taxed?

Interest on CDs is taxed as ordinary income. Your bank will provide you with a 1099-INT detailing the interest that you must report on your tax return at the end of each year. Regardless of whether interest is paid in the form of a check or added to principal, CD holders need to report the interest in the year in which it is paid. Purchasing a Certificate of Deposit of one-year or less that pays a single lump sum interest payment at maturity may defer tax on interest until the following year, but otherwise holders of CDs should generally expect to pay ordinary taxes on interest earned in every year in which they hold a CD. Further detail is found in IRS Publication 550 (page 5).

Why Are CD Rates So Low?

CD rates on terms of 1 and 2 years were very constantly low for many years from 2009 to 2015 as the Fed Funds rate was held at zero following the great recession. Rates on longer term CDs were occasionally more interesting during this period (depending more heavily on the level and direction of the US Treasury Bond).

The US Federal Reserve’s action towards normalizing interest rates has been painfully slow (resulting from Brexit, European financial instability, etc.), and CD rates have remained at levels that are very low by historical norms. However, we have seen CD rates rise in 2016 and 2017 as the Federal Reserve has begun to slowly raise the Fed Funds rate.

Are CD rates going up or down? When are they expected to rise?

If the Federal Reserve accelerates its plan to raise the Fed Funds rate or if global economic developments were to cause US treasury rates to rise, we would quickly see higher CD rates. However, the global economic environment is uncertain with European long-term interest rates being negative. Should the US also enter a recession and the US 10-year Treasury rate fall still further, it is possible that CD rates could fall further.

What is a good rate for a CD?

BestCashCow lists the best CD rates available from online banks above, and the best rates from local banks and credit unions. A good rate is the best rate that you can find at an FDIC or NCUA-insured institution, provided that it compensates you adequately over the best savings rates for the liquidity that you are giving up. Only you can determine based on your own personal circumstances whether that is a good CD rate for you. BestCashCow’s Savings & CD Calculator can help you to understand how much more interest a CD can generate over a savings account.

Is there an advantage to a 12-Month Certificate of Deposit over Online Savings Accounts?

At any moment in time, there is ordinarily a premium to an online 12-month CD rate over an online savings rate. The table below demonstrates the spread between the two over the last several years. Whether it makes sense for you to take advantage of these higher rates in the 12-month rate depends on your own need for liquidity and your view on whether and how fast savings rates will rise.


The advantages of online one-year CDs are:

  • Funds deposited in FDIC banks and within insurance limits are protected by the full faith and credit of the United States government.
  • CDs provide a predictable, set rate of return.
  • The CD can be opened from the comfort of your house.
  • The CDs are generally available to any resident of the United States.

The disadvantages of one year CDs are:

  • One year CDs pay interest rates that are just above the leading rates offered on online and branch-based savings and money market accounts. There is a very slight premium for having the money locked up for one year. Your own circumstances and tax rate will help you to determine if that premium provides adequate compensation to you for your loss of liquidity.
  • The deposited money is committed for one year.
  • The account must be opened online and all inquiries must be conducted online or via the phone.
  • Depending on the bank, the opening and funding process can take several days to weeks although the bank generally locks the rate once the application has been received and approved.

All banks listed on BestCashCow are FDIC insured; strongly recommends that you stay within FDIC insurance limits and that if you are unsure of how the limits affect you, please visit the FDIC website.

To understand all of the income generating options available to a saver, please view the Income Generating Investments Comparison Chart.

What to Look for in an Online CD Account:

FDIC and NCUA Insurance - In order to secure the viability of the US banking system, the Federal government provides insurance to a maximum amount of $250,000 per individual per institution (or $500,000 for joint account holders). This insurance is provided to banks through the FDIC and to credit unions through the NCUA. All banks listed on BestCashCow are FDIC insured; most, but not all, credit unions listed on BestCashCow are NCUA insured. Ordinarily, all deposits (CDs, Checking, Savings Accounts) held in the same type of ownership are added together and insured to $250,000, funds held in different types of ownership (Individual, Joint, Trust, Retirement) may fall under separate insurance provisions. In order to determine if your financial institution is insured and to ascertain your coverage limits, please visit - as appropriate - either and use the BankFind functionality or and use the Share Insurance Toolkit. We recommend that you deposit funds in only FDIC and NCUA insured institutions and that you do not exceed coverage limits.

Minimum Deposit - There is such competition for your money that the best CD rates are often available for sums as little as $500.

Term and CD Rates- Three month and six month certificates of deposit rates do not dramatically exceed those in online savings and money market accounts, and money market funds. Moreover, investors in states with higher state tax, such as New York and California, in an ordinary environment (not 2011) will perform equally well in a three-month US Treasury Bond or pre-refunded municipal bonds after they account for the fact that interest produced on those products are tax advantaged.

Generally, longer the CD term, the higher the CD rate. In general, the term you choose depends on how long you want to tie up your funds and also what you think will happen to interest rates.

Interest rates will fall. Then it is better to put money into longer-term CDs to maintain the high rate as long as possible.

Interest rates will rise. Put money into short term CDs. By keeping your cash more liquid, you can re-invest it as rates go up.

Interest rates will remain flat. In this case, going for longer-term CDs will help you maximize your interest income.

Learn more about getting the best CD rates.

Avoiding CD Pitfalls:

Early Withdrawal - Any certificate of deposit will bear substantial penalties for early withdrawal, if it is even allowed. Ordinarily, the penalty for early withdrawal will be a loss of all of your accrued interest, but there are certain circumstances where banks will also assess penalties that will result in a loss of some of your principal.

Recent Articles

Probably the Worst Moment in the History of Mankind to be Locking into Long Term CDs

Rate information contained on this page may have changed. Please find latest cd rates.

I was recently contacted by a reader about 5-year CD rates.    Given that the best rate available at any online bank, local bank or credit union remains not much better than 1%, I have long and strongly admonished that it would not be a good idea to lock in right now.

The reader pointed out that they are staying true to their program that involves rolling over 5-year CDs as they mature.

I am in favor generally of adhering to programs through thick and thin, but this is absolutely not the time to do it.   At no time have we experienced such tremendous inflationary pressures against a Federal Reserve that is so intent on holding its benchmark Fed Funds rate artificially low (at zero !!).   These circumstances have created bubbles all over the place - in cryptocurrencies, in real property, and in just about any asset.   And, even if Jerome Powell stands to be correct that inflation is transitory and that the Fed needs to maintain rates at this level to ensure a smooth recovery from the virus, you should not expect cash rates (savings and CD rates) to hold at these levels for the next 5 years.

In 2005 and 2006, online savings rates were above 4%.   Within the last three years, they have been well above 2%.   There will be competition for your money again.   In fact, even today as banks are supposedly flush with cash, there are plenty of banks offering over 50 basis points in online savings and money market accounts.

To forfeit liquidity and lock in to a 50 basis point premium over savings rates (a doubling) for the moment against such an uncertain future is simply foolhardy, unless you can find a bank or credit union that will agree in writing to waive all early withdrawal penalties.

The bottom line is that inflation probably isn’t transitory and that higher rates are coming, but if you insist on hedging against rates moving lower, then buy a one-year CD.

Some Dreadful Advice About Short-Term CDs

Rate information contained on this page may have changed. Please find latest cd rates.

Forbes, the financial magazine that had been deceived for decades into believing that Donald Trump was a billionaire, is running an interesting advertisement on LinkedIn, Twitter and Facebook this morning.

They are encouraging social-media users to consider a 3-month CD in lieu of keeping their money in savings accounts.   The advertisement posits that 3-month CDs are a great way to lock-in a short-term rate without locking up cash for a long period.    Those clicking through the ad to the Forbes website will land on a page of that lists several 3-month CD rates with the highest paying 0.20% APY.   The best current online savings rates are currently 0.70%, and locally available savings rates are a little higher in some markets (check local savings rates where you live here).

One-year CDs and even six-month CDs have in fact been a great way to secure interest payments going forward in an environment where interest rates are falling.   Through my use of the BestCashCow tables I have been fortunate to still have CDs that are paying close to 2% that don’t come due until the summer.    If you believe that savings rates will continue to decline through 2021, and do not require immediate liquidity, you would put some of your cash into these instruments where you can lock in 0.60% to 0.70% through the remainder of the year.

3-month CDs, however, never pay much of a premium above the prevailing savings rate.  In the current environment, they are paying a whole lot less.   In fact, you would have to believe that all online savings rates are going to go to zero (or that you will be paying the bank to hold your money) within the next month to make locking into a 3-month CD rate at 0.20% even remotely worthwhile.   With the 10-year US Treasury rate now firmly back above 1%, that is absolutely not a bet to make.

Online savings rates have performed very poorly versus a lot of competing places for your money.   But, one thing they are guaranteed to do is to outperform is 3-month CDs. 

The Federal Reserve and Treasury Secretary Janet Yellen Should Consider an Emergency Fed Funds Hike - Maybe Even 50 BPS

Rate information contained on this page may have changed. Please find latest cd rates.

Now that we are reaching the end of Jay Powell’s tenure as Chairman of the Federal Reserve, it is fair to say that the man has strayed from his pre-chairmanship policy positions when he had emphasized using Fed policy to promote price stability.

After initially raising rates all the way to a target of 2.25 to 2.50 in December 2018, Powell reversed course on August 1, 2019, when he lowered the Fed Funds rate.  There was no economic justification for this first action, other than to give in to bullying of an authoritative creature who appointed him.  Powell subsequently lowered the rate two more times in 2019 before bringing it to zero in early 2020 as COVID took over.   Powell’s actions in 2019 did not save anyone, and his actions in 2020 did not prevent the “Main Street” economy from entering a tailspin.

However, asset valuations have been brought to levels that are basically ridiculous.   Apple, the country’s largest company, trades over 28x earnings after subtracting out its cash, when the company traded at 8x by the same metric three years ago (and that was before it had achieved such great market penetration).   Other stocks trade at much more frothy levels.   And, it isn’t just that 1999 wants its stock market back, but real estate values across the country (outside of New York City) are screaming, bitcoin and precious metals are going bonkers.   The Fed is pumping liquidity all over the place and cash cannot be deployed in savings account s or even CDs (in a riskless manner) where it maintains its purchasing power.

Creating asset multiple bubbles is not doing anything for the real economy.   It is increasing the disparity between the billionaire class and the rest of us, and preventing assets from being deployed in sensible and functional ways.   Unemployment is spiraling out of control and food lines are everywhere.

Most importantly, Fed policy has not promoted price stability.   At the conclusion of the Federal Reserve’s last meeting, Powell said that because inflation remains below the Fed’s 2% target, there is no concern about price stability.   Hence, presumably, the Fed can keep interest rates at 0% indefinitely.

However, this view runs counter to everything that Powell stood for before August 1, 2019.   He always wanted the Fed to act aggressively so that a dollar today would have the same value as a dollar one year from now.   Instead, he has left the circumstances where a dollar today will be worth 98 cents one year from now and 96 cents two years from now (if we are lucky).

Powell essentially admitted having failed to back Main Street when he told the European Central Bank’s Forum on Central Banking that “We are recovering but to a different economy.”

The problem here is that we need to recover to the economy that we had where Main Street does as well as Wall Street and small businesses have the resources to employ people.

We need the Republicans to pass a stimulus package.   In addition, incoming Treasury Secretary Janet Yellen and the next Fed Chairperson (possibly Lael Brainard), needs to act quickly to reverse current bubbles and economic dysfunction in order for the real economy to heal itself.   A 50 basis point increase in the Fed Funds rate or a series of smaller moves might be right medicine to apply here.

Until the Fed acts, stay in savings accounts and short-term CDs, and try to resist the temptation of buying into bubbles.