I speak to lots of folks every day in my work and in my travels. These people are all very sophisticated – they are lawyers, doctors, engineers and other professionals.

It has already been four months since the interest rate environment began to change, and consumers can now easily access rates approaching 4% on savings accounts and well over 4% on short term CDs.

And, the Fed is poised to move still higher next week and possibly in February, making the opportunity to earn interest without any risk (or at least to maintain some degree of purchasing power parity) more interesting than it has been in decades (or at least since 2006). Yet, for some reason, it just isn’t apparent to all.

I am surprised when I mention that I own BestCashCow that I frequently am told with a high degree of conviction that 2% is a competitive savings rate right now (it isn’t) or that locking up money for the next 12 months at 3.50% makes good sense (it doesn’t).

As we approach year-end and the holiday season it is a good time to do a little financial “house-cleaning”. The easiest house-cleaning to do is to make sure that all of your cash is earning a competitive rate of return.

Take 5 minutes and check the leading savings rates here and short-term CD rates here. (If you want to bank locally, instead of online, then check local savings rates here and local CDs here.)

While the rate environment is dramatically different now, the most important piece of advice that I can give as we enter 2023 is the same as that which I would have given in 2022, 2021, or 2020. Get your cash out of non-competitive account. Whereas in past years, that advice meant encouraging people to move their money from accounts paying 0.01% to those paying 0.60%, top rates are now 6 or 7 times higher, making it even more important to act now. The old excuses – “we aren’t talking about a lot of money”, “I am making so much on the market, in bitcoin, etc.”, “it just isn’t worth my time”, “my tax bracket is so high that all the extra earnings will be taxed away anyway” – don’t work anymore. And, with inflation real and present, earning more on your cash gives you a fighting chance on maintaining purchasing power parity.

In short, there is nothing more important than seeking out the most competitive online savings rates and locally available rates. And, if you want further confirmation of this strategy, we recommend at least one competing site.

Even though the Fed is not finished raising rates, many are eager to lock down the certainty in earnings that a one-year, 18-month or two-year certificates of deposit now offer. While short-term US Treasuries have been compelling over the last several months, short-term CDs may become dramatically more compelling as banks and credit unions are forced to seek capital to maintain FDIC and NCUA deposit requirements in early 2023. Do not take it for granted that short term US Treasury will remain above similar duration bank CD rates.

If you are willing to sacrifice liquidity in order to secure an attractive, fixed interest rate for a longer period (3 years, 4 years or 5 years), online bank or credit union CDs are now your best bet. US Treasury bonds are currently offering much lower yields for these durations, even after accounting for their state and local tax benefits. Agency bonds – particularly those offered by Federal Home Loan Bank, Federal Farm Credit Bank and TVA which are state and local tax free - may offer higher rates than CDs, but are always callable after one year or less. Also, they are considered by many to be less secure than CDs (as long as you stay within FDIC and NCUA limits) as there is a moral obligation on the part of the federal government, but not the explicit guarantee that the FDIC and NCUA provide.

There are a lot of ways to earn more in 2023 and we hope you’ll continue to make BestCashCow part of your strategy.

Happy New Year!

The sudden bank run on Silicon Valley Bank (SVB) that materialized over the course of yesterday is quite troubling. The reality is that banks make bets on interest rates, and when interest rates move suddenly in one direction, as they have over the last year, it creates challenges for a bank’s Risk Department. In the case of SVB, they are reported to have very low yielding long term assets, such as 10-year or 30-year Treasuries, that they may have purchased when interest rates were sub-1%. These assets would presumably trade at such a significant discount if they were to sell them today that the bank would not be able to cover its liabilities.

SVB’s situation is both unique and extreme since most of the bank’s depositors are huge venture capital funds and entrepreneurs from Silicon Valley. These are depositors who are so wealthy that the FDIC insurance amounts of $250,000 for an individual ($500,000 for a couple) are entirely inconsequential. Because the depositors are so over-exposed to a failure, a sudden bank run, especially in Silicon Valley where information can also move and be acted on much more quickly than normal.

It is fair to say that ordinarily when banks have unrealized losses, they have the time and ability to borrow from the Fed’s discount facility.

While we therefore would not expect that other banks will have runs like this, there is just one simple thing that depositors can do with their cash to protect themselves, and it is the same advice that I have given since BestCashCow’s founding in 2005.

The advice is to stay within FDIC and NCUA limits at real banks and credit unions. Your money should not only be FDIC-insured or NCUA-insured, but it should be someplace where you have direct access to it, where your name is on the account, and where it is completely transparent what you are in. Taking this advice one step further, I would reiterate my advice to avoid fintechs, even those claiming that they are holding your cash in a government-insured account, and money market accounts. The institutions behind these instruments could easily expose them to either (a) other institutions like SVB, and or (b) be engaged in activities that may involve risk and may not be completely transparent in order to offer deposit rates that are competitive with those that banks are offering.

In short, the safest thing for your money today is quite simply deposit accounts at FDIC or NCUA-insured banks.

Compare online savings rates here.

Check out 1-year cd rates here.