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Online Savings & Money Market Account Rates 2020

Online Savings & Money Market Account Rates

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Fed Hikes 25 Basis Points In Jay Powell’s First Meeting as Chairman

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The Federal Reserve raised the Fed Funds rate by 25 bps to a target of 1.50% to 1.75% this afternoon.

The move marks the sixth such move since the Fed began moving the Fed Funds rate from zero in December 2015, and was unanimous.   While the Fed did not raise its outlook for 2018 (the median forecast remains at a total of 3 hikes), it raised its Fed funds rate forecast to 2.75% at the end of 2019 and 3.40% at the end of 2020 (the long-run forecast was also raised to 2.90% from 2.75%).

The Fed’s decision to raise to a 3.40% Fed funds forecast basically assumes an additional 2 more 25 basis point hikes over the next three years than it had guided to previously.  Interestingly, it is making these forecasts at a time when it also does not see inflation rising much above 2% between now and the end of 2020, and sees the unemployment rate falling from its current 4.1% level all the way to 3.6% in 2019. 

Unforeseen economic events can often cause the Fed to quickly change policy.  In this case, however, the Fed is guiding towards a faster pace of action against both the assumption of a very stable inflationary environment and the increasing likelihood of economic disruption caused by an unhinged President Trump.

We would, therefore, continue to be very, very cautious about locking into CDs longer than 1-year right now.  

5 Savings and CD Accounts to Take a Look at In March 2018

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Savings and CD rates continued their climb towards the end of February.  We expect rates to continue to go up into Jay Powell’s first meeting as Fed Chairman.  Powell’s testimony in front of Congress this week has made very clear that he will be a hawk and not a dove.  Interest rates are going up 3 times, maybe 4 and maybe even 5 before the end of 2018.  While we cover long-term CDs, we have never been as adversely inclined towards them as we are now.

Here are 5 related products that have caught our attention as we begin March.

1. Dollar Savings Direct – 1.80% Savings Rate

Dollar Savings Direct is a subsidiary of Emigrant Direct.  As we noted last month, DSD has been way ahead of the curve in raising their rates as rates have been increasing.   On February 27, 2018, they raised their savings rate by 20 basis points from 1.60% to 1.80%.   It continues to be a fairly solid bet and user reviews are generally good.  We’ve been made aware that they cannot link for ACH transfers with Morgan Stanley (UMB Bank) and Merrill Lynch.   And, given Emigrant’s troubles over the last decade, we’d be very careful to stay within FDIC insurance limits.

2. Popular Direct – 1.65% Savings Rate

Popular Direct is a subsidiary of Banco Popular North America, a bank that had real troubles in 2009 and been the subject of recent acquisition rumors involving some major Spanish banks.  The online bank’s website was recently revamped, and we think it could be worth a look, although we again urge you to be very careful to stay below FDIC insurance limits.

3. Marcus – 1.50% Savings Rate

Marcus is the new name for Goldman Sachs’s online bank.  While the rate isn’t so attractive at 1.50%, if you want to open a bank account at a place where you will feel comfortable occasionally exceeding FDIC insurance limits, Goldman Sachs is the one.

4. Live Oak Bank – 2.10% 1-Year CD rate

While we want to be cautious about CDs, Live Oak Bank’s 1-year CD continues to be the best nationally available online CD rate.  If you must submit to your desire to pick up a couple more basis points, this is the one to go for, especially since their early withdrawal penalty is only three months’ interest (other banks have more onerous penalties) and you will be able to get out with little damage if rates really start to move dramatically higher quickly this spring or summer.

5.  Capital One 260 – 2.65% 5-Year CD rate

Again, we certainly aren’t recommending a 5-year CD at this point in the cycle.  But, if you feel that rates aren’t going to get much higher and want to get into a 5-year product, this is the one we would recommend at the moment, especially since Capital One’s early withdrawal penalty for their 5-year CD is only 6 months’ interest (many other banks have penalties for early withdrawal of 5-year CDs of one year’s interest or even more). 

The great thing about the above rates is that they are all readily available online.  However, brick-and-mortar banks and credit unions are also becoming rate competitive.

Here you can check the best savings rates for local banks and credit unions where you live.   CD rates for local banks and CD rates for credit unions can also be checked here.

Five Reasons to Raise Cash Now

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You have probably been making a lot of money in stocks for some time now, or are jealous of those who have while you sat on the sidelines.  However, there are reasons for raising cash in your portfolio right now.  Here are five of them.

Stock Overvaluation

Just because stocks are expensive doesn’t mean they are going to decline.  However, when they do fall they will likely fall significantly allowing those with cash to purchase stocks at much cheaper prices.

Rising Interest Rates

Interest rates are rising which means that your bond portfolio is likely to lose value.  In addition, credit spreads are minimal so you are not getting paid for the risk you are taking when buying corporate bonds over government bonds.

Rising Rates, Part 2

Returns on CDs and money market accounts have been rising because the Federal Reserve has been raising short-term rates for 2 years.  Rates are not enough to keep you ahead of inflation, but they are no longer effectively zero, allowing patient investors at least some nominal return while they wait for a great opportunity.

Cryptocurrency Hysteria has Abated

For a while Bitcoin and other cryptocurrencies were going straight up.  It seemed like a good idea if you were keeping cash that you should be buying cryptocurrencies and have someone buy them from you at a higher price at a later date.  That trade was never risk-free. 

Liquidity Could Dry Up

Although this is unlikely in the near term, there are times when asset prices plunge because there are simply no buyers.  Would be buyers are not sitting on enough cash and buying an asset, no matter how attractive, is reliant upon selling another asset.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Securities offered through Kestra Investment Services, LLC.,(Kestra IS) member FINRA/SIPC.  Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.  J Matrik Wealth Management is not affiliated with Kestra IS, Kestra AS, or Five Star Professional.