The Federal Reserve concluded its 2 days meeting yesterday and acted unanimously to hold the Fed Funds target rate to 2.25% to 2.50%. Guidance continues to be for no more rate changes in 2019, as the Fed previously indicated in its March meeting. Although the Fed statement expressed concern about inflation falling below target, Jerome Powell resisted questions indicating that it might create the basis for lowering rates later in the year. While Powell has already compromised Fed policy by bowing to Presidential harassment in November, he now seems to be resisting calls by the President and Larry Kudlow and other pretend economists to lower the Fed Funds rate.
Against this backdrop, we think short-term CDs now look pretty attractive. While many banks have lowered their 1-year CD rates to levels that are no longer competitive (Synchrony, Sallie Mae Bank and others), you can still find rates at or above 2.80%. We think you are unlikely to lose much or any interest by locking in money that you wont need at that rate, especially as interest rates would need be raised twice by 25 basis points for savings rates to achieve that level. You should, nonetheless, only invest in products that have early withdrawal penalties of three months interest or less.
Two one-year CD products that we like here are:
- Citizens Access – 1-Year CD, 2.85%, $5,000 Minimum
CitizensAccess has gotten positive reviews on BestCashCow since launching in 2018. Their accounts are by-and-large easy to open and manage online and the penalty for early withdrawal is only 3 months’ interest.
- Live Oak Bank – 1-Year CD, 2.80%, $2,500 Minimum
Live Oak is a tiny little NC-bank, but their website is well-developed, and their 1-year CD rate is still competitive (although it was lowered from 2.85% in March). Their penalty for early withdrawal is also only 3 months’ interest.
NO PENALTY CDs
In addition, we recently wrote about the increased attractiveness of No-Penalty CDs, and you can read that article here.
- Purepoint – 13-Month No Penalty CD, 2.50%, $10,000 Minimum
Since we wrote that article, Purepoint’s rate has fallen by 10 basis points (from 2.60% to 2.50%). However, even at 2.50%, Purepoint’s No Penalty CD rate matches that of the best online savings account. Since you can access a No Penalty CD at any point after the first few days, they just do not have the liquidity risk of long-term CDs.
Check out other No Penalty and Special Term CD rates here.
In our April update, we cited My Savings Direct and CIBC as two online savings rates that are very competitive (offering 2.40% and 2.39% APY, respectively) with no or very low minimum balance requirements. While savings rates are not guaranteed and could change from day-to-day, these two have remained competitive and are well worth a look.
Have a great month.