We pointed out in our May and April updates, that the Fed may be on hold for a while. We also suggested that May could be a good time to sell and go away. As we enter June, it looks more and more likely that the economy is heading for uncertain times as a result of unnecessary trade wars with China, Mexico and perhaps others initiated by our autocratic president.
I have highlighted No Penalty CDs in the recent past. As we crossed through May, these became more and more attractive by the day. These products offer the advantage of a higher interest rate and the certainty that the rate will be applied for about a year. At the same time, No Penalty CDs give you the flexibility to access your money without penalty after 10 days should you need the money or should rates rise (which is still a distinct possibility if inflation is an outcome of these trade wars). One disadvantage is that you ordinarily cannot make partial withdrawals, although you can always terminate the CD and reinitiate it provided rates do not fall.
As a result of their flexibility in this uncertain period, No Penalty CDs comprise recommendations 1, 2 and 3 for June.
- Purepoint – 13-Month No Penalty CD, 2.50%, $10,000 Minimum
Although Purepoint’s rate has fallen by 10 basis points since being initiated earlier this year, even at 2.50%, Purepoint’s No Penalty CD rate matches that of the best online savings account.
- Marcus – 13-Month No Penalty CD, 2.35%, $500 Minimum
Marcus’s product can be easily set up online, has a lower minimum balance requirement than the others and can be terminated in seven days.
- Ally – 11-Month No Penalty CD, 2.30%, $25,000 Minimum
Ally’s No Penalty rate is not as competitive as Purepoint’s or Marcus’s, it minimum balance requirement is higher and its term is only 11-months (a longer term is actually better as it provides more protection should rates fall). Yet, Ally makes the list because they have been offering this product for years, and it is super easy to terminate the CD and initiate a new one online should rates rise, should you require a partial withdrawal, or should you wish to extend the end date.
Check out other No Penalty and Special Term CD rates here.
The market for savings and money market products – particularly in the online space – continues to be very competitive and rates have not fallen very much as a result of increased economic uncertainty and the fall in long-term rates. They have not fallen yet. Savings rates are not guaranteed and could change from day-to-day. One strategy to protect your interest rate is to look for new entrants in the online space that are spending a fair amount to gain deposits and are therefore unlikely to slash their rates for some time.
Two new entrants in May that have caught our attention are:
- Susquehanna Community Bank, 2.53%, $100,000 Minimum
- BMO Harris Bank, 2.45%, $5,000
While the rates are good, some of these new entrants are so untested that there is some risk to this strategy, and you may wish to wait to see the comments on BestCashCow about some of these banks before opening an account.
Have a great month.