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Online Savings & Money Market Account Rates 2021

Online Savings & Money Market Account Rates

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Hot Money - A Defense

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A well-known online bank recently dropped its savings rate by 15 basis points, and that action prompted me to close my account there and move the entire balance into a one-year CD at another bank.

When the bank’s manager called to find out why I had withdrawn my entire balance - and I explained my decision – he proceeded to explain that my money is “hot” and that they don’t want hot money.   He also explained to me that his bank is different from all others in that it only wants customers who are loyal, i.e., who leave their money in the same bank for years. 

I might have been taken aback by the sheer arrogance and the use of the term “hot money”.   I worked for several years in the banking business and to me “hot money” always implied some sort of illicit or illegal activity (for example, the Trump Organization's revenue is all “hot money”).   But, when I looked up the definition, I found that the Oxford Dictionary defines “hot money” as:

capital which is frequently transferred between financial institutions in an attempt to maximize interest or capital gain.

By that definition, my money is hot money.   And, I will clarify still further:   Loyalty is fine as long as the customer is rewarded.  Otherwise, it is just a word to convince you to sit on your hands and ignore the reality that there is competition for your money, always.  As with everything you do in life, it is important to get the best deal you can.   And, the great thing about living in a market economy is that as a consumer you are not just a rate-taker.

Especially in a declining rate environment, my cash, just like all of my investments, needs to be managed to maximize its appreciation.   I can play with a savings and CD calculator.   I can also run some quick numbers on the back of my hand.   $100,000 earning 2% over the next year may produce $2,000 of pre-tax income if savings rates do not fall further, but as of this date it earns me at least another $400 to $500 in a one-year CD at another bank (unless savings rates turn around and rise).

So, yes, my money is “hot money”.   And, nobody should be ashamed to try to secure all the interest that their cash cash generate over the next year as rates decline.  

Trump Is Preparing to Fire Jay Powell and Replace Him with Jim Cramer

Trump tweeted at 8:22 AM this morning:

"I agree with @jimcramer, the Fed should lower rates. They were WAY too early to raise, and Way too late to cut - and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome? Oh well, you can’t win them all!"

Trump doesn’t hide his cards very well, and here he doesn't want to.  He is threatening Powell here to get his 50 basis point cut this month.   When it is only 25, as most expect, he is going to fire him.   Powell says he will refuse to leave.   I wrote in October that I think the President has the right to fire him.

Cramer, of course, is great entertainment.   He is a real showman and he is showing some swag on CNBC with David Faber this morning because he knows he is closer to the job he wants.   I am not sure about his qualifications to be Fed Chair, but he certainly is a strong advocate for the stock market, and from that podium he might just drive the Dow Jones to 30,000 before the election.


Steer Far Away from Long Bonds and Preferred Stock Right Now (and from Anyone Pushing These Securities)

A good friend of mine in money management who I ordinarily think very highly of told me this weekend that he likes the 15-year US Treasury bond.   I’ve also seen this same endorsement of the longer term US Treasuries from money managers and other talking heads on CNBC and Bloomberg.   With the recent move in interest rates, many have seen the appreciation in long bonds and preferred stock in a short period.   They have begun espousing (and promoting) the idea that investors should be only in equities and bonds, and backing it with evidence that some Austrian government debt has increased by 50% this year as their long-term interest rates have turned sharply negative.   Therefore, they suggest that you need to buy the 15-year US Treasury bond at 1.50% or the 30-year US Treasury bond at 2.00% or preferred stock wherever it is trading.  

This advice is inappropriate for every individual investor, and everyone espousing it needs to take a bond pricing class.   They are widely offered in MBA programs and I learned a lot from mine at Columbia some 20 years + ago.    Without going into all of the details, let me just say that if longer term US Treasuries go back to 3%, you will experience a 30 to 35% loss in the value of any Treasury instrument with a duration over 15 years and any preferred equity instrument (these have infinite duration).   It will be instant and you will not know what hit you.

Europe has negative interest rates.    The US does not.   This does not mean that the US will have negative interest rates in the near future or ever.   It is more likely that Beyond Meat will completely replace meat in the near future and I do not think that is going to happen.

Now, savings and CDs may not be as sexy as equities (which you may want to have exposure to), but at this point in the cycle they are a whole lot safer and more sexy than long bonds or preferred stock (which you absolutely should not be buying).