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Avoid CNote and Other So-Called Savings Alternatives

I was recently contacted by a journalist from a very well respected and widely circulated financial publication.   She wanted my opinion of something called CNote, having already spoken with others (inside and outside the financial field) who were gushing over this product and company that had just won an award at South By Southwest in Austin.

I had not been familiar with CNote.   I researched it.   What I found was troubling, to say the least.

When I cofounded BestCashCow several years ago, the object of the site was to provide the largest and most comprehensive database of bank savings and CD rates in order to help people save and earn more without taking on additional risk.  That remains the mission of the site today.  

Alarm bells go off when I see people comparing anything to a traditional savings or CD product in order to induce people to put money that they cannot afford to risk into a product that bears none of the characteristics of a savings bank product.   In the post-financial crisis era with increased consumer financial protection from the CFPB, selling a financial product that has completely different characteristics from a savings or a CD product (no liquidity parachute, no change in rates) and calling it a savings or CD product is highly troubling.

CNote is neither a savings product or a CD product.   It is entirely illiquid – you can only recover 10% of your principal each quarter.  This is a loan investment product with significant risk compared to a savings product from a bank.   Unlike a savings or CD product, money you deposit with CNote is not insured by the FDIC, NCUA or anyone else.

CNote is now offering 2.75%.   With online savings rates at or around that level and short-term CD rates much higher, the current yield that CNote is offering is quite simply much too low to justify the risk.

CNote presumably is legal under Tier 2 of Regulation A of the Securities Act of 1933 (as amended in 2015).     But it is a loan investment product and bears the risk of a loan, not the risk of a savings product or a CD product.   I suspect you may see regulators (the SEC and Treasury Department / Office of the Comptroller of the Currency) weigh in on the use of the terms “checking and savings” and “CDs” with the whole range of products now being promoted by the uninsured neobanks and Silicon Valley-backed outfits such as CNote.  However, in the meantime it falls to you (the consumer) to product yourself by depositing money you cannot afford to risk only in products from FDIC-insured banks and NCUA-insured credit unions. 

The thing that concerns me most about CNote and some of the Neobanks (such as Aspiration) is their effort to seduce consumers with their argument that they are “investing socially”.   Implicit in this argument is the inference that banks and credit unions are not investing in things that are in the public good.   In fact, the desire to do good is a powerful influence in FDIC insured institutions.  Putting your money in local banks and credit unions that lend directly in your community is a great and perfectly safe way to keep your hard earned money working in your community (or some other community).  (In fact, BestCashCow can help you to research credit unions and community banks that have goals and objectives that align with your social investing objectives).

If you cannot find a bank or credit union that meets your goals or want specifically to earn a higher rate of return by investing in, say, women-owned ventures or electric school buses, you can find social investing-oriented funds that offer rewards that are more consistent with the risk level.

You can learn more about CNote in this article in Forbes where I am quoted.

Bottom line: Steer yourself far away from CNote and products like it.

March 2019 Update - 5 Savings and CD Offerings to Check Out

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

We are pulling through the winter, and savings and CD rates are continuing to firm, but are not moving dramatically higher as the Fed now seems intent to hold the Fed Funds rate at 2.25% to 2.50% until later in the year.

Here are 5 products that we find particularly compelling:

1.   CIT Bank Savings Builder – 2.45%, Requires $25,000 Balance or $100 plus an additional deposit of $100 a month

CIT Bank’s reviews are largely favorable and their rate is very attractive.   BestCashCow has named CIT as one of our best bets for 2019 so we think it will remain competitive.   There are two ways to qualify for the savings builder account – either to maintain a $25,000 balance or to open the account with $100 and deposit at least $100 during each monthly measurement period (between the 4th day of each month until the 4th day of the following month).

2.    CIBC Bank – 2.39% Savings Rate, No Minimum Balance

CIBC is one of Canada’s largest banks and launched its US online bank in late 2018.  Their 2.39% savings rate is aggressive, and they have been among the first to raise their rates when the Federal Reserve raised the Fed Funds to its current level in December.   To boot, the bank’s online savings account has no minimum balance.

3.   My Savings Direct – 2.40% Savings Rate, $1 Minimum Balance

My Savings Direct is owned by Emigrant Bank.   An account here bears certain risks and disadvantages that are well known to anyone who has followed the online savings space and Emigrant’s strategy.   We highlighted these in our February newsletter.   But, until and unless these risks materialize, the rate is attractive at 2.40%.

See and compare all of the best online savings rates here.

4.   Purepoint – 2.60% 13-Month No Penalty CD, $10,000 Minimum

We have been hesitant to recommend CDs with rates rising, but we have also spoken very highly of the benefits of No Penalty CDs.  With that in mind, Purepoint’s 2.60% No Penalty CD, introduced earlier this week, is startlingly attractive.   It represents a 15 basis point premium on the best savings accounts (a 25 basis point premium on Purepoint’s savings account) and does not have the liquidity risk of CDs.   We think this product is a very attractive alternative to a savings account at the moment.

5.   Live Oak Bank – 2.85% 1-Year CD, $2,500 Minimum

Many are looking to short-term CDs to pick up yield and Live Oak’s 1-Year CD is one of the highest yielding and safest ways that we see to do it.   The penalty for early withdrawal is only 3 months' interest and the minimum balance is only $2,500.  

Check out the best 1-year CD rates here and see long-term CD rates here and special rate CDs here.

Have a great month.

February 2019 Update – With the Fed on Hold, Here Are Five Attractive Nationally Available Online Savings And CD Rates

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

Savings and CD rates continued to firm into the end of 2018.  However, as we predicted back in November, Fed Chairman Jay Powell has now fully equivocated as a result of presidential harassment and the Federal Reserve has now held the Fed Funds rate at 2.25% to 2.50%.   It is possible that rates could be here until later in 2018.  Here are 3 savings accounts that we find attractive at this point:

1.   MySavingsDirect – 2.40% Savings Rate, No Minimum Balance

MySavingsDirect is a division of Emigrant Bank, a large New York-based bank.   Customer reviews are mixed and Emigrant has a history of dropping rates in one division (holding customers who don’t regularly check their rates) while raising rates in other divisions.   However, MySavingsDirect has been competing for depositors by raising rates for some time and, it is, at least for the moment, the highest yielding account without a minimum balance requirement.   In addition to the need to stay on top of the rate to make sure it isn’t lowered, those considering MySavingsDirect should know that it does have direct ACH connections to all other banks (which is something that is pretty standard among most online banks).

2.    CIBC Bank – 2.39% Savings Rate, No Minimum Balance

A couple of years ago, The Private Bank which operated out of Chicago offered competitive online savings rates.   The bank was purchased by the CIBC, one of Canada’s largest banks, which in late 2018 re-launched the platform under the CIBC Agility brand in order to compete for deposit accounts in the U.S.   CIBC now appears to be a very aggressive market participant.    It has been among the first to raise their rates when the Federal Reserve raised the Fed Funds rate.   To boot, the bank’s online savings account has no minimum balance.   

3.   CIT Bank Savings Builder – 2.45%, Requires $25,000 Balance or $100 plus an additional deposit of $100 a month

CIT Bank’s reviews are ordinarily favorable and their rate is very attractive.   However, unlike the above two savings accounts, this rate does have a minimum balance requirement.   There are two ways to qualify for the savings builder account – either to maintain a $25,000 balance or to open the account with $100 and deposit at least $100 during each monthly measurement period (between the 4th day of each month until the 4th day of the following month).   We think CIT is likely to remain competitive and named it one of our best bets for 2019.

See and compare all of the best online savings rates here. 

While we have been hesitant to recommend CDs with rates rising, the Federal Reserve’s recent decision to slow the pace of rate increases may provide reason to take a look at one-year CDs, particularly those with low early withdrawal fees.   Here are two that are competitive, and will penalize you with only 3 months of interest should you need to break the CD early.  

4.   Live Oak Bank – 2.85% 1-Year CD, $2,500 Minimum

Live Oak Bank is a small North Carolina bank that entered the online banking arena last year.     It has not been a consistent competitive player in the savings space and it can and does frequently adjust CD rates.   At the time of this publication, their 1-year CD rate stands at 2.85%.    Live Oak does not enable an account holder to have over $250,000 in total in their CDs, and you should not be exceeding FDIC limits with a small North Carolina bank anyway.

5.   Sallie Mae Bank - 2.85% 1-Year CD, $2,500 Minimum

Sallie Mae Bank has an old interface and you will see a spinning wheel when you try to open a Certificate of Deposit there.   But, its rate is 2.85% on a 1-year CD and it is likely that they will still be among the most competitive rates when it comes time to renew.

Check out the best 1-year CD rates here and see long-term CD rates here and special rate CDs here.

Have a great month.

Stop Waiting for the Big Money Center Banks to Raise their Rates

It has been many years since I co-founded BestCashCow, and I have heard just about every excuse possible for keeping your cash in low interest earning savings and money market accounts, checking accounts and CDs.

However, there is a new refrain that I am hearing and it is actually really irking me.  It goes something like this.

“Well, I have been meaning to move my cash out of Wells Fargo but I haven’t gotten around to it and I am sure that if rates are going up, they will have to become competitive soon so I am just going to leave it there.”

The only part of this quote that is even remotely correct is that rates are, in fact, going up.   The reality is that the large money center banks are currently flush with cash from other funding operations, and from others taking the same wait-and-see approach.   Today, the big banks are able to raise more money than ever before through capital markets to fund their lending operations, and they now have more money in deposits than they have ever had before.

These banks are counting on being able to successfully sell the pitch that they are delivering a better service and therefore customers should be willing to continue to accept zero interest rates for the service.   My personal view is that this pitch may continue to be compelling for depositors of small amounts.   For those holding $15,000 in a deposit account at Chase you gain access to their ATM network, their branch network, notaries and maybe safe deposit boxes, and even then you really need to require these services to justify forgoing over $400 in interest annually.

But, anyone holding over the bare minimum for the services that they need from a money center bank is not adopting best practices in relation to their finances.

There are banks and credit unions where you live and online banks that compete for your savings.   In fact, there are local bankscredit unions, online banks that are competing for your checking by offering far better rates and often times the same services.   Seek them out now.

Jack Bogle, Index Investing and BestCashCow

Jack Bogle pioneered the investing world and the mutual fund industry.   He taught the world that they should not be paying fees for performance, and that seeking to be average will outperform over the medium-term and the long-term.    He was correct that the extraordinary performance of a single manager is seldom, if ever, sustainable and that their fees will exact major damage for the investor.

I have been amazed that the best business schools in the country – Columbia, Harvard and Stanford – are still full of aspiring analysts and money managers in the post-Vanguard era. all still seeking to open their own funds.   More amazing is that many of these folks are still successful in raising capital (many aren’t).

Ever since I co-founded BestCashCow, I have frequently been asked if it is my view that people should avoid the stock market.   That has never been my view.   Over the long-term, investing in a broad and diversified stock market portfolio, and only just matching the stock market is the single best way to build wealth.   My view is that you should never be 100% in the stock market and that you will never know when you will require liquidity.  I’ve now lived long enough to know that many who were overinvested and forced to sell in October 1987, early 2001 or early 2009 were, without exaggeration,  slaughtered. 

So, while you should never be 100% in the market, you should be in the market in some form.   And, for those who don’t know how to build their own portfolio through an online broker, an extremely low fee fund like the Vanguard S&P 500 Index is a much better way than to pay fees upon fees upon fees to invest with someone who has put together a couple of good years at the track.  And, running parallel with forays into the market, of course, must be the wisdom to keep resources out of the market and in savings and CDs.  It’s that dual strategy that will always be a winning strategy.

Nothing Could Be More Dangerous Than to Buy a Bond Fund Right Now

Occasionally, financial planners reach out to me and want to connect on LinkedIn and social media.  While I do not hold financial planners in very high esteem since, they are always selling their latest product.  I occasionally connect in order to further the reach of BestCashCow.

I do not often engage in debate with these folks, but sometimes I see information shared that is so dangerous to investors and their retirement planning that I need to say something.

That happened this morning with this Wall Street Journal piece:

I have written before about the dangers of owning bonds of any nature in an environment where interest rates are rising and spreads are increasing.

As dangerous as individual bonds may be, they are in principle much less dangerous than owning a bond fund, even a high quality bond fund, since you can always just hold a bond until maturity without having your proceeds drained by a manager in a down environment.   At maturity, you get out at par, whereas you may never get out of a bond fund at par.

The 10-year US Treasury went to 3.20% last year.   As interest rates rose, bond prices fell.   Market turmoil over the last 2 months has lead people to seek safe haven in bonds and that has brought US Treasury rates back to 2.60%.   But, this is a blip.   It is a fleeting moment where you should be selling bonds and bond funds.   It isn’t a time to buy.   The Federal Reserve is still normalizing interest rates and in that environment the 10-year is still going up.

These two graphs from the St. Louis Fed are the best warning I can give.   The first, that dates back to 1960, shows how abnormally compressed the 10-year Treasury is by any long-term measure.   The second, dating back only 10 years, shows how quickly 10-year US Treasury rates can reverse and rise (even in an environment where interest rates are low).  

The “buy bond funds” crowd came out of the woodwork in dramatic fashion in mid-2010 as the 10-year fell from 4.00% to 2.50%.   Those who followed this advice saw their funds collapse when interest rates reversed and were in a world of pain in January 2011.   While those folks found some opportunities to get out later, opportunities which buyers today may not get.

Stick with savings accounts and short-term CDs for now.


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Graph 2