Fed Keep Rates at 0% Offering No Hope for Savers

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The Federal Reserve released its FOMC Statement today and there were no surprises. The Fed reiterated its support for "exceptionally low levels of the federal funds rate for an extended period." That means savers will continue to earn almost no rate of return on savings accounts and very little on longer-term certificates of deposit. This may force many investors to think about putting cash into other investments, such as bonds.

The statement pointed out that Europe's problems along with a detoriating real estate market and high levels of unemployment will keep the economy subdued for some time to come. Those expecting a roaring V-shaped recovery are starting to realize that's not going to happen. At this point, the world economy is one more shock away from falling back into recession.

For savers this is more of the same. Savings rates and CD rates will continue to drift lower. The bright side has been the significant slide in mortgage rates since peaking in mid-April. The average 30-year mortgage rate is now 4.76%, down from 5.25 in April 2010.

Low rates will also continue to support the stock market.  Dividend stocks like Verizon (VZ), AT&T (T), and Pfizer (PFE) lead Dow stocks in terms of yield and offer those needing income one way of generating it. Verizon for instance pays 6.85% versus an average savings rate of 1.31%. But unlike FDIC bank stocks, they also offer the potential loss of principle.

The good news for savers and bond holders alike is the absence of inflation. According to the Fed statement:

"Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time."

Those spreading panic about soaring inflation in 2009 were dead wrong, at least so far. The economy needs a strong heartbeat to stir inflation and all we have now are some sporadic pulses. Despite any sign of  inflation, gold remains near a 52-week high as investors remain spooked about Europe's sovereign debt issues.


Top Savings Rate Drops to 1.55% APY - CD Rates Steady

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Savings and CD rate averages have held steady over the past two weeks although the top savings rate has dropped significantly. Two weeks ago the top savings rate was 1.75% APY and now the top rate is 1.55% APY.

Savings and CD rate averages have held steady over the past two weeks although the top savings rate has dropped significantly.

Savings Rates

Average rates dropped slightly from 1.34% APY to 1.31% APY. The top rate has come down significantly. Two weeks ago the top rate was 1.75% APY and now the top rate is 1.55% APY. One month ago, the top rate was 2% APY. So, in four weeks the top rate you could get on a savigns account has fallen significantly. For promotional rates, Everbank remains on top with their 3-month introductory bonus rate of 2.25% APY. After the three-month period, the rate drops down to 1.26% APY for a blended one year APY of 1.51% APY.

CD Rates

The average 1-year CD also remained steady at 1.57% APY for the fourth week in a row. First City Bank continues to hold the top spot with a 1.80% APY CD. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Acacia Federal Savings has moved into the second sport with a 1.65% APY CD.

The average 3-year CD rate is the only average to dropped slightly from 2.43% to 2.42% APY. The top spot continues to be occupied by USAA Federal Savings Bankwhich offers a 2.65% APY CD with a minimum deposit of $175,000. The next highest rate is Acacia Federal Savings at 2.50% APY and a $500 minimum deposit.

The average 5-year CD rate remained steady this week at 3.12% APY after dropping from 3.17% APY four weeks ago. The average is now closing in on the 3% mark.

USAA continues to have the top rate at 3.31% APY. Everbank which holds the second highest rate dropped from 3.30% APY to 3.26% APY. A month ago Everbank was offering the same CD for 3.39% APY.

The spread between savings and 3-year CD rates dropped slightly and now stands at 1.11, from from a high of 1.24 in March. The ratio between 1-year CDs and 5-year CDs has remained steady over the past month and appears to have topped off. What does that mean? Both 1-year and 5-year CD rates have stopped dropping and are maintaining their relative ratios. The flat trends of the past month seem to support this conclusion. If the economy continues to improve I expect we'll see longer term CDs begin to move up first, followed by shorter maturities once the Fed looks poised to raise the Fed Funds Rate.


WT Direct Offering Up to $500 Cash Bonus to Open Savings Account

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WT Direct just launched a pretty rich savings offer today. When you open a savings account with them, they'll pay a cash bonus of $100 for every $10,000 you deposit, up to $50,000. That means you can make $500 for depositing $50,000 into the bank.

Looking for a relatively easy way to make $500? WTDirect just launched a pretty rich savings offer today. When you open a savings account with them, they'll pay a cash bonus of $100 for every $10,000 you deposit, up to $50,000. That means you can make $500 for depositing $50,000 into the bank. The offer is good until June 15.

You only need to keep the money in the bank for three months to receive the cash bonus.

So, let's take a look at the economics of the offer. $100 for every $10,000 deposited equals a 1% return. WTDirect is on the high yield savings account list with a rate of 1.16%. That means the effective rate of keeping your money with them for a year is 2.16%, which is the highest of any bank on the BestCashCow rate tables.

The nice thing about WTDirect's offer is you only need to maintain the money in the bank for 3-months. That means the annualized return is actually 4%.

WTDirect is the online division of Wilmington Trust Corporation (NYSE: WL), a $48.1billion asset financial services company with more than 2,500 people worldwide. The company was founded in 1903 by members of the duPont family.  It is the largest banking company in Deleware and the 15th largest personal trust institution in the United States.

The bank was rated 3 out 5 stars (Adequate) for its safety and soundness according to Bauer Financial.


Top Savings and CD Rates Flat - Little Movement in Past Week

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Savings and CD rates were mostly flat this past week with the top rates holding.

Savings Rates

Average rates remained at 1.34% APY. Southern Community Bank continues to have the highest non-promotional ate at 1.75% APY. For promotional rates, Everbank remains on top with their 3-month introductory bonus rate of 2.25% APY. After the three-month period, the rate drops down to 1.26% APY for a blended one year APY of 1.51% APY.

CD Rates

The average 1-year CD also remained steady at 1.57% APY. First City Bank continues to hold the top spot with a 1.80% APY CD. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Tennessee Commerce Bank maintained the second spot at 1.70% APY.

The average 3-year CD rate is the only average to drop and it fell from 2.45% APY to 2.43% APY. The top spot continues to be occupied by USAA Federal Savings Bank, which offers a 2.65% APY CD with a minimum deposit of $175,000. The next highest rate is Acacia Federal Savings at 2.50% APY and a $500 minimum deposit.

The average 5-year CD rate remained steady this week at 3.12% APY after dropping from 3.17% APY two weeks ago. The average is now closing in on the 3% mark.

USAA continues to have the top rate at 3.31% APY. Everbank which holds the second highest rate dropped from 3.30% APY to 3.25% APY. Two weeks ago Everbank was offering the same CD for 3.39% APY.

The spread between savings and 3-year CD rates dropped slightly and now stands at 1.09, from from a high of 1.24 in March.. While savings rates have continued to come down, 3-year CD rates are coming down even faster. The ratio between 1-year CDs and 5-year CDs has remained steady over the past month and appears to have topped off. Expect 3-year CD rates to fall further to bring this ratio down.


Top Savings Rate Tumbles to 1.75% APY - Savings and CD Average Rates Resume Fall

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After remaining steady for the past three weeks, average savings rates and cd rates dropped over the past week. Perhaps more significantly, the top savings rate tumbled.

After remaining steady for the past three weeks, average savings rates and cd rates dropped over the past week. Perhaps more significantly, the top savings rate tumbled.

Savings Rates

Average rates dropped from 1.36% APY to 1.34% APY. The drop unfortunately was led by rate leaders. Southern Community Bank dropped the leading non-promotional rate from 2% APY to 1.75% APY. Franklin Synergy also dropped their rate from 1.65% APY to 1.6% APY. For promotional rates, Everbank remains on top with their 3-month introductory bonus rate of 2.25% APY. After the three-month period, the rate drops down to 1.26% APY for a blended one year APY of 1.51% APY.

I never thought I'd see the day when average rates would go to 1% APY but at this point we're getting awfully close.

CD Rates

The average 1-year CD dropped from 1.61% APY to 1.57% APY. First City Bank continues to hold the top spot with a 1.80% APY CD. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Tennessee Commerce Bank maintained the second spot at 1.70% APY.

The average 3-year CD rate also dropped by 2 basis points from 2.47% APY to 2.45% APY. The top spot continued to be occupied by USAA Federal Savings Bank, which offers a 2.65% APY CD with a minimum deposit of $175,000. The next highest rate is Acacia Federal Savings at 2.50% APY and a $500 minimum deposit. Acacia dropped their rate this past week from 2.65% APY.

The average 5-year CD rate dropped the most over the past week moving from 3.17% APY to 3.12% APY. We infrequently see the 5-year drop by more than the other shorter terms.

USAA continues to have the top rate at 3.31% APY. Everbank which holds the second highest rate dropped from 3.30% APY to 3.25% APY. Two weeks ago Everbank was offering the same CD for 3.39% APY.

The Market and Interest Rates

The recent volatility in equity and bond markets has dampened some of the rate pressure from a strenghening economy. Whie Treasury yields rose today with the stock market surge and the news of Europe bailing out debt-ridden economies, Treasury yields are still lower than they were several weeks ago. Throw in jitters about sovereign debt default and yo-yo-stock markets, and repeated statements from Bernanke that rates will remain low for an extended period, and you have the environment that could push savings rates down to 1% APY.

Savings,CDRateAnalysis

The chart below shows that while the spread between different deposit accounts is still high but is flattening or coming down. The spread between savings and 3-year CD rates has dropped for the past six weeks. While savings rates have continued to come down, 3-year CD rates are coming down even faster. The ratio between 1-year CDs and 5-year CDs has remained steady over the past month.

SavingsandCDSpreadAnalysis


Sallie Mae Bank Raises Savings Account Rate from 1.25% APY to 1.40% APY

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Sallie Mae Direct today raised their savings account rate from 1.25% APY to 1.40% APY. That represents one of the few rate increases we've seen over the past six months.

Sallie Mae Bank today raised their savings account rate from 1.25% APY to 1.40% APY. That represents one of the few rate increases we've seen over the past six months. The 1.40% rate makes it much more competitive on the BestCashCow rate tables and it is the second highest rate for accounts with no minimum balance.

Sallie Mae Bank entered the online savings space relatively recently. Key savings account features include:

  • No minimum balance
  • No monthly fees
  • Daily compounding interest
  • Linkage with Upromise that provides a 10% match on Upromise earnings.

The application supports joint accounts and is fully electronic. Once the application is approved you'll receive a welcome letter via email with login information. Deposits are done via ACH with an account you choose to link. The linkage process if verified by two small trial deposits that are made to the external linked account. This is standard online banking procedure and the more automated way to link and transfer funds.

Sallie Mae Bank has three out of five stars from Bauer Financial for its safety and soundness. The bank is FDIC insured and according to the FDIC has $7.9 billion in deposits as of Dec 31, 2009. The bank is part of student loan lender Sallie Mae.