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Online Savings & Money Market Account Rates 2022

Online Savings & Money Market Account Rates

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Savings Accounts May or May Not Be the Best Place to Be Right Now

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

Following the stock market’s incredible collapse in March and subsequent recovery, my inbox has been inundated with emails from readers writing to tell me that they are now 90% to even 100% in cash.

These emails come from people young and old, rich and poor, optimistic in their tone and pessimistic in tone.   Some include racist, conspiratorial rants as part of their justification.   Others are more rational.

I am not 100% in cash or even close.   I maintain a healthy portfolio of major pharmaceutical stocks and biotechs.   I own major technology stocks that I have no intention of selling.   But, outside of those sectors, my only exposure to equities is through Berkshire Hathaway.

Stock markets today are dramatically overvalued.   The S&P is trading at a trailing P/E of 20x.   While trailing earnings or even current earnings are not the only way to value a stock or an index, the other mechanisms take into account earnings growth and leverage.   Earnings will be down dramatically across the board in 2020 and probably into 2021, and the market is highly leveraged.   Therefore, there simply is no more favorable metric than the P/E ratio right now.

The problem with savings and money market accounts as a place to hang out is clear.   The longer that the Federal Reserve maintains the target Fed funds rate at zero to 0.25% (or lower), the more likely we are to see savings rates fall.   Over the last two weeks, virtually every major online bank lowered its savings rates by 20 basis points and it is increasingly difficult to get more than 1.30% on your savings.

Some have suggested that the outcome of the COVID-19 crisis will be a prolonged period of deflation in the US.   If we do enter a period of deflation, cash could be the single best asset to hold since it will maintain its real value ($1 tomorrow will be worth more than $1 today and commercial banking will never take your money and give you back less).

I personally do not see asset deflation in an era where the Federal government will be unable to have a balanced budget and where leverage rates are likely to need to remain very high throughout the public and private sectors.

In an environment where prices are increasing by more than what you are earning in a savings account, maintaining your money in savings accounts may not be a reliable intermediate or long-term strategy for maintaining value and purchasing power.

Savings accounts are calming and are a great place to hang out for short periods of time when the economy is going through a massive transformation.  The ability to earn a higher rate of return and maintain complete liquidity makes online savings accounts particularly interesting during this period.    But, people need to think a little more creatively about maintaining the real value of their money and that may involve investing in commodities such as gold, real estate, some equities and short or long term CDs.

Federal Reserve Maintains Fed Funds Rate at 0 to 0.25% and Outlines Further COVID-19 Action

The Federal Reserve has held the Fed Funds target rate constant at zero to 25 basis points today.   Chair Jerome Powell indicated that the ongoing COVID-19 public health crisis has weighed heavily on the economic condition of the country.   Inflation remains an overriding concern to extraordinarily low interest rates, but is very muted as a result of the economic slowdown and does not present a concern.  The Federal Reserve also indicated that it remains prepared to use tremendous tools in the interim as it sees fit in order to maintain liquidity, including using its balance sheet to purchase treasury and agency mortgage-back securities.   It is also employing lending powers to an unprecedented extent through a “mainstreet facility” to make credit available where such credit may be necessary to avoid or reduce household suffering (with the understanding that the Federal Reserve has lending powers but may not make grants or extend loans that it does not expect to see repaid). 

The Fed’s statement indicates an intention to maintain rates here until it is confident that the economy has weathered COVID-19.   The statement does not introduce the possibility of a move into a negative Fed Funds rate as was advocated last week by Narayana Kocherlochota, the former Chair of the Minneapolis Fed.   Importantly, the Fed’s statement does not commit to maintaining low interest rates until unemployment returns to 2019 levels.

The Fed refrained from stating that it believes that the economy will recover nicely in 2021 after COVID-19 is behind us.   Powell recognizes that there is uncertainty around the virus and that the virus is going to dictate the length and depth of this depression.  We will obviously see significant declines in economic activity and significant increases in unemployment in the near term, but POwell and the Fed are unable to provide guidance for the intermediate and longer term. 

What Will Happen to Savings and CD Rates If the Federal Reserve Takes the Fed Funds Rate Negative?

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

There is a lot of concern that the Federal Reserve is running out of bullets in its response to the current Depression.   It has already lowered the Fed Funds rates to zero, engaged in extraordinary quantitative easing, and opened up the Federal Reserve’s balance sheet in a way that makes the Federal government an active player in US debt markets.  

Narayana Kocherlochota, the former Chair of the Minneapolis Fed, makes a compelling argument on today for the Federal Reserve and Chairman Jerome Powell to lower the Federal funds rate to negative territory through at least a 25 basis point cut.   Kocherlochota argues that the benefits in terms of stimulating bank activity far outweighs the risks in light of the fact that the unemployment in the US continues to spiral out of control.   

In a 2015 article on CNBC, Goldman Sachs’ Jan Hatzius recommended that bringing interest rates negative for any length of time must be viewed as a last resort because of the resulting impact on banks’ financials and the dislocation that such a move would cause in the US.

Of course, since the US has not experienced negative interest rates before, it is more of less entirely hypothesizing what the impact on savings and CD rates would be.   Today, even with the Fed funds rate sitting at a target of zero to 0.25%, online savings rates are holding firm at or over 1.50%, with one-year online CD rates still higher.   (You may be able to find higher local savings rates and local CD rates where you live by checking here or here.)  

It would seem that a quarter point move in the Fed Funds rate, bringing it so decisively into negative territory, would cut out any yield in savings and virtually everything in CDs.

This action would put further pressure not just on banks, but on savers who will not be able to maintain purchasing power of safely invested assets against a continued rise in US CPI of around 1%.    It would also put still further pressure on local and federal governments who depend on taxation of earned interest.

Am I wrong?   Please let me know below what you think happens if the Federal Reserve takes rates negative.