Starting to Look Like Japan - One-Year CDs Offer Small Upside, But Miniscule Risk

Starting to Look Like Japan - One-Year CDs Offer Small Upside, But Miniscule Risk

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

With long CD rates compressing and yields in savings accounts enigmatic, this is a good time to look at one-year CDs.

Global markets are continuing to reward risk and to provide very little yield in risk-free assets.  While rates were expected to go up in 2016, we have seen a decline in long-term rates in the US (caused by a dramatic drop in long term rates in Europe).  We have also seen rate compression in risk free assets (US Treasuries and now CDs).  In 2014 and 2015, 5 year CDs offered rates as high as 2.50% APY.  Now, even the best rates are closer to 2.00% APY (see the best rates here).  Savings rates are barely holding constant with only a couple of the leading online rates holding above 1%.  It seems that we are all starting to look like Japan where savers have been rewarded with extraordinary low interest rates for decades.

Find all of the best savings rates – online and locally – here.

As we look at a continuation of what has become a virtual zero rate phenomenon, a handful of banks are offering 1 year CD rates at or above 1.25%.  In fact, the best CD rate available online today is 1.35% with a $5,000 minimum deposit.  If you have money that you are resigned to keeping in cash and that is earning 0.90%, you can easily pick up an additional 50% return by getting into a one-year CD.

Ok, I hear you.  I know that the actual pick up here is pretty low.  In fact, you would need to move over $222,000 from an account earning 0.90% to a CD earning 1.35% just to make $1,000 more over the next year.  And, that $1,000 is going to be fully taxable at the federal, state and local levels.  However, if savings rates do not rise and you continue to earn 45 basis points more by being in short tern CDs, the additional gain becomes real.  As the Japanese have found, when waiting for savings rates to rise, one year quickly turns to two, and two to 10 or 20, and the value of the additional interest, when compounded, does become meaningful.  Using BestCashCow’s savings booster calculator makes this clearer.

Rates may be going up, but it is clear that they are not going to be rising very fast.  If you have money that you cannot keep in risky assets (such as the stock market) and that you are unlikely to need for the next year, it may be time to start shifting into 1-year CDs.  If savings rates were to spike or if you need your money for an unforeseen expense, you can ordinarily get it back by paying a modest early termination penalty (Sallie Mae, Colorado Federal and BAC Florida all have penalties on their 1-year CDs that are only 3 month of interest).  

See the best one-year CD rates - online and in banks and credit unions near you - here.

Image: Toru Hanai / Reuters, 2014

HSBC Action May Signal Coming Competition in 2016 for Savings Dollars

HSBC Action May Signal Coming Competition in 2016 for Savings Dollars

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

HSBC Bank's recent letter to those who opened promotional savings accounts over the summer may finally usher in an era of more competitive savings rates from major money center banks through their branch networks.

Over the summer of 2015, HSBC aggressively advertised a "Promotional Premier Savings Account" designed to attract new depositors and new money to their branch banking system.  As featured on BestCashCow, depositors were offered a promotional rate of 1.50% which was guaranteed until January 19, 2016.

Since the 1.50% rate was (and is) better than even the best online savings rates, HSBC attracted alot of new capital through this offer.  As January 19, 2016 is approaching, these same depositors were probably preparing to move their savings out of HSBC to one of the leading online savings accounts at that bank's ordinary savings rate is currently only 0.15% on deposits over $100,000 (and 0.10% on deposits over $25,000).

In order to avoid losing the deposits that it courted so aggressively, HSBC has sent a letter to those who opened these accounts over the summer notifying them that from January 19, 2016 onwards they will receive 75 basis points more than the standard HSBC Premier Savings account.  The letter further agrees that HSBC will provide at least 30 days advanced notice of any subsequent decision to remove the 75 basis point incentive.

As a result of this action, those depositors who took advantage of HSBC's summer promotional offer who keep over $100,000 at HSBC will be earning 0.90% going forward until further notice.  This rate of course is not anything to write home about, and is currently 15 to 20 basis points below the best online savings rates available.  However, it offers the hope that 2016 will finally bring more competition from other major banks with large branch networks to attract new capital and keep capital.

Find the best local savings rates where you live.


Salem Five's OSA - Competitive Rate, MA DIF Insurance, Some Challenges

Salem Five's OSA - Competitive Rate, MA DIF Insurance, Some Challenges

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

For several years, Salem Five's online savings account has been one of the most competitive online accounts available. Many of our readers suggest that we remove it because it has features that are more onerous and difficult to understand than some of the other savings accounts listed on the site. BestCashCow.com recognizes these issues but feels that it Salem Five needs to be listed among the best yielding savings accounts because these issues can be worked around.

Salem Five is a Massachusetts-based financial institution that has been a competitor in the online savings space for many years.  Its online savings rate today stands at 1% and that is among the most competitive online savings rates.  Because Salem Five is a Massachusetts bank, it is covered under the Massachusetts DIF policy that insures each depositor’s accounts, regardless of state of their residence, to a maximum of $1 million.

Over the last several years, two series of problems have become evident with Salem Five Direct’s online savings accounts.  These problems have been highlighted to BestCashCow.com by our readers and we feel that they still need to be addressed by Salem Five.

First, promotional rates are higher than the rates in the post-promotion period and the rates in the post-promotion period are not transparent on the face of the site.

BestCashCow.com considers the practice of offering a rate dramatically above market to be a bait-and-switch tactic and warns depositors of this tactic.

Salem Five’s post-promotional rates have always been 5 to 10 basis points below its promotional rates which tend to be the only ones listed on its website.   Salem Five should be more transparent about its promotional and post-promotion rates.   Depositors simply should not be required in the post-promotion period to log in to their account weekly or monthly to find out how much below the advertised promotional rate they are earning.

While Salem Five now seems to have suspended, at least temporarily, the practice of issuing promotional rates, we have always found that their entire promotional savings rate thing played into the hands of whoever was writing the script for the Ally Bank television ads.

Second, transfers out of the Salem Five Direct Savings Account are not free and severely limited in ways not consistent with the US online savings account market

When using Salem Five Direct’s online banking interface, depositors are limited to $5,000 per transaction, $5,000 in aggregate per day; and $20,000 in aggregate per calendar month.   Each outbound ACH transfer initiated through Salem Five has a $3 charge.  These limits are very onerous - actually ridiculous.  Using Salem Five’s website, it would take a year and cost $144 to move $240,000 out of Salem Five Direct.  Under no circumstance do these limits and charges match the market practices for online savings accounts.  Their very existence is material to depositors and perspective depositors, and they are not cardinally disclosed on Salem Five's website.

Allso not disclosed on Salem Five’s website is the very fact that the market creates a work-around for the limits and charges.  By initiating your ACHs out of Salem Five through another online bank account, such as CIT, Synchrony or Ally, you can avoid Salem Five's transfer limits and fees.   Your Salem Five Direct account can easily be set up and confirmed as an ACH transfer account using their routing number (211370558) and your account number.  

The feedback that we have received from BestCashCow.com readers that Salem Five Direct has drawbacks that other online banks do not have is entirely correct.  We think it is within BestCashCow’s role as the most comprehensive and informative U.S.-based website on personal savings issues to make consumers aware of the existence of Salem Five’s products.  We also think Salem Five needs to take active steps to provide its customers with better rate disclose and match market practices regarding online ACH transfers. 

Compare the best online savings rates here.

Image: ddpavumba at FreeDigitalPhotos.net