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Online Savings & Money Market Account Rates 2020

Online Savings & Money Market Account Rates

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Federal Reserve Chairman Jerome Powell Bows to President Trump, Setting Dangerous Precedent

Jerome Powell in his speech this morning at the Economic Club of New York stated that the Federal Reserve is “just below” its neutral rate.

The Federal Reserve is poised to raise the Fed Funds rate by 25 basis points to 2.25% to 2.50% in December.   The Fed had previously indicated that it would bring the rate above 3% in 2019, meaning that there would be another 25 point move in March, one in June, and at least one more in the second half of the year, perhaps two.

By so publicly moving away from the 3% neutral rate, Chair Powell has bowed to pressure from a President, adjusting his policy to accommodate a man who is browbeating him on Twitter, expressing his regret at having chosen him for the position, and publicly musing about firing him.

I suggested earlier that Trump could successfully and legally fire Powell.  At the bare minimum, what Powell made clear today is that he likes his job and doesn’t want to be fired.

However, Powell also crossed a line and created a dangerous precedent.   A strong Federal Reserve is data dependent and takes action to protect the economy, not to protect a President, a dictator, or his family’s real estate empire.

It is my view that we are likely to face tremendous inflation over the next year.  Inflation is already apparent in the costs of goods and services, the result of an hourly minimum wage that is now $15 in most of the country, and increased costs of transportation that will likely escalate unless oil and gas prices continue the precipitous decline we have seen the past two months.

Raising the Fed Funds rate, perhaps well above its neutral rate, could very well be necessary to stomp out inflation, and failure by the Federal Reserve to be responsive could result in a decline in the real value of just about every asset class (except perhaps precious commodities like gold).   By bowing to pressure from the President, the specter has now been raised that we could find ourselves in 12 months time with a Federal Reserve that is not acting independently but rather responding solely to a dictator’s interests.

It is a dangerous precedent indeed. 

Ray Dalio’s Advice is Not For You

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Ray Dalio is a Greenwich-based hedge fund manager.   I don’t know Ray, but by all accounts he is a very successful operator with excellent performance and a smart guy.

Dalio has recently been playing his hand at making far out comments in order to gain attention.  Dalio is generally very discrete and responsible (for example, he did not go on CNBC when Bitcoin hit 19,000 and say it was going to 40,000 like other frequent CNBC guests).    Nonetheless, his latest piece of advice is not for you.

You see, Dalio stated to CNBC that saving money in cash is “the worst thing you can do.” 

Dalio correctly stated that cash is tax disadvantaged and that you are taxed on interest at ordinary income rates, making cash a less advantaged asset class from a tax perspective than many of other alternatives where income generated has favored treatment (dividends from equities, for example) and where capital gains can be achieved.

But, Dalio overlooks the fact that cash is always going to be there from day to day.   You won’t loose 2/3rds of it as you did in 2000 – 2002 or as you did in 2008 – 2009, or as many of his Greenwich-based hedge fund brethren have done in a rising stock market over the last several years.    And, if you aren’t old enough to remember those periods or familiar with these types of losses, you can read about the losses people have recently had on bitcoin or look at the market’s fall in just the week after Dalio’s comments.

For those people who aren’t billionaires and who are dependent on maintaining their current asset levels in order to secure the education of their children, cash is a necessary and appropriate place to be and it can be an appropriate place to be with a substantial part of your portfolio for long periods.

To boot, cash doesn’t earn the 0.09% that Dalio assumes that it earns when he says that it doesn’t keep up with inflation.  The leading online savings accounts are paying upwards of 2.25% at the moment, and 1-year online CDs can be found at 2.70%.   Dalio needs to familiarize himself with the rates on BestCashCow (or our competitor’s sites) before he makes incorrect statements such as that.

Note to Ray Dalio, as of the date of this article, cash, even if it were only earning 0.09%, has outperformed the stock market, the bond market, EM, bitcoin and real estate in 2018.   It is certainly looking like it might outperform these asset classes in 2019 as well.

A Lesson for your Kids about Math and Money

It’s very hard to figure out when and how to discuss money with your children.  It’s almost as difficult, surprisingly, as talking with them about sex.  But there is an easy way, one that also gives them at the same time an unusual introduction to math, especially fractions and multiples.

Today, banks (and there are an unusually large number of both online banks and brick-and-mortar banks) compete with one another to offer the best interest on both short and long-term money accounts and CDs.  In fact, there is a dizzying array of offers out there of constantly changing rates.

For parents and children the new environment and competing banks offer a perfect opportunity for introducing easy to grasp but highly important skills in money management concepts and division and fractions.  Equally, bank interest rate competition also provides an environment of very low risk, making things both fun and safe.   Many online banks – including Ally and CIT – make it particularly easy to open a savings account for minors.   Such a savings account is a far safer place to put allowance, presents or earnings than trying to teach your kids to experiment with small stock purchases as a way to introduce concepts of income generation and the like.

What makes it all even better for introducing math and money matters to children is that there are a number of sites, including BestCashCow, where the primary focus is on tracking and making easily available changes and fluctuations of interest and CD rates over short periods of time and across the spectrum of the nation’s banks. 

In particular, this site and have great calculators that offer a real resource to demonstrate to your kids the value of compounding money throughout their lifetimes, and the importance of incremental improvements in a savings rate when compounded over time.