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Online Savings & Money Market Account Rates 2019

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Absolutely Impossible to Predict the Direction of Short-Term Interest Rates Now

The two most common questions that we get at BestCashCow are “which direction are interest rates going?” and “how do I position myself now if the Fed raises or lowers?”

The answer to the first question drives the second.  

Never in the 14 years since this site was founded has it been so difficult to determine the direction of interest rates.

On the one hand, it is unprecedented to have an Administration that knows no legal, ethical, moral or other boundaries and which will stop at nothing to win re-election in 18 months.     Trump himself, Kudlow and others will continue to direct unprecedented lobs at the Federal Reserve and Jerome Powell, its Chairman, in order to persuade them to lower rates between now and November 3, 2020.

Powell already changed the Fed’s guidance in November 2018 as a result of Presidential harassment, leading Wall Street analysts to predict that the next Fed move is to lower the Fed Funds rate from its current range of 2.25% to 2.50%.

But, Powell’s original position was that the Fed needs to bring the rate to a neutral position around 2.85% and he has recently used the absence of inflation as his grounds for stalling here.   It is highly likely that any prolongation of a tariffs war with China will cause inflation, perhaps even strong inflation if there is also a rise in the price of underlying commodities.   Therefore, I think it is impossible to count out the possibility of at least one Fed raise before the end of 2019.

I therefore continue to advise people to keep most of their money in savings and money market accounts and no penalty CDs.   However, one-year CDs that offer rates at or above 2.80% and have early withdrawal penalties of only 3-months or less are available online and locally, and I think that they may make sense for some of the money that you know you will not need during that period.   I would avoid longer-term CDs for the moment as they are not offering a significant premium over shorter term CDs.

See our latest monthly update for more information on some of the best products currently available.


Uber and Lyft Are At Least 7x to 10x Overvalued

I am watching Bloomberg and CNBC this morning as Uber prepares to come public.   The discussion among analysts is on whether Uber and Lyft should be trading at 4 times sales or 6 times sales.   Lyft is a pure play US taxi service.   Uber is more international, and plays in a whole series of other industries, including transport and food delivery.   Lyft’s top line is growing much faster.   Hence, presumably one merits a premium over the other.

The discussion strikes me as patently absurd.

To be clear, the last time that analysts suddenly switched from trying to rationalize equity pricing at multiples of sales was, umm, March 2000.   The argument was made that internet stocks could create such efficiencies that a top line multiple could be applied.   But, those companies had wide margins at the time.   Uber and Lyft today are operating at margins of around 20% that are continuing to compress.

These types of valuations that are being applied to Lyft and Uber are predicated on robotaxis replacing cars that require a driver in the immediate future and on automation leading to wider margins.

Now, I am a big believer in the future of automated driving, but I don’t see that necessarily expanding the margins of either Uber or Lyft operating fleets of driverless cars in 2020.  Even Uber CEO, Dara Khosrawshahi, says it will be “quite a few years” beyond 2020.

When the industry becomes completely automated (whether that happens in 3 years, 5 years or 10 years) and Uber and Lyft are operating fleets of driverless cars, their margins will not be expanding at the rate that would justify a sales multiple of four or six times sales today.   Rather, the margins will continue to compress as the market for robotaxis will be perfectly competitive (as will the market in every other industry in which Uber participates). 

So, I believe that even under the most realistic and optimistic circumstances, a fair valuation for companies operating in this industry would target a PE of about 10x in 5 years or a price to sales of about 0.4x to 0.6x.   That would make both of these companies overvalued by 7 to 10x.   And, I intend to invest in both of these companies when they trade at those valuations.


May 2019 Update – The Fed May Be On Hold for a While

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

The Federal Reserve concluded its 2 days meeting yesterday and acted unanimously to hold the Fed Funds target rate to 2.25% to 2.50%.   Guidance continues to be for no more rate changes in 2019, as the Fed previously indicated in its March meeting.   Although the Fed statement expressed concern about inflation falling below target, Jerome Powell resisted questions indicating that it might create the basis for lowering rates later in the year. While Powell has already compromised Fed policy by bowing to Presidential harassment in November, he now seems to be resisting calls by the President and Larry Kudlow and other pretend economists to lower the Fed Funds rate.

ONE-YR CDs

Against this backdrop, we think short-term CDs now look pretty attractive.  While many banks have lowered their 1-year CD rates to levels that are no longer competitive (Synchrony, Sallie Mae Bank and others), you can still find rates at or above 2.80%.    We think you are unlikely to lose much or any interest by locking in money that you wont need at that rate, especially as interest rates would need be raised twice by 25 basis points for savings rates to achieve that level.  You should, nonetheless, only invest in products that have early withdrawal penalties of three months interest or less.

Two one-year CD products that we like here are:

  1. Citizens Access – 1-Year CD, 2.85%, $5,000 Minimum

CitizensAccess has gotten positive reviews on BestCashCow since launching in 2018.   Their accounts are by-and-large easy to open and manage online and the penalty for early withdrawal is only 3 months’ interest.

You can learn more about CitizensAccess here

  1. Live Oak Bank – 1-Year CD, 2.80%, $2,500 Minimum

Live Oak is a tiny little NC-bank, but their website is well-developed, and their 1-year CD rate is still competitive (although it was lowered from 2.85% in March).   Their penalty for early withdrawal is also only 3 months’ interest.

You can learn more about Live Oak Bank here.

See all 1-year CD rates here.

NO PENALTY CDs

In addition, we recently wrote about the increased attractiveness of No-Penalty CDs, and you can read that article here.

  1. Purepoint – 13-Month No Penalty CD, 2.50%, $10,000 Minimum

Since we wrote that article, Purepoint’s rate has fallen by 10 basis points (from 2.60% to 2.50%).   However, even at 2.50%, Purepoint’s No Penalty CD rate matches that of the best online savings account.   Since you can access a No Penalty CD at any point after the first few days, they just do not have the liquidity risk of long-term CDs.  

Check out other No Penalty and Special Term CD rates here

ONLINE SAVINGS

In our April update, we cited My Savings Direct and CIBC as two online savings rates that are very competitive (offering 2.40% and 2.39% APY, respectively) with no or very low minimum balance requirements.   While savings rates are not guaranteed and could change from day-to-day, these two have remained competitive and are well worth a look.

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

Have a great month.