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.

2. 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.

3. 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.

We have all heard the old stock market adage: “Sell in May and Go Away.” But, anyone who has followed the market for the last few decades knows that the adage only held true in 1999 and 2008. Even if you had sold in May 1987, you would have missed a tremendous run into October of that year.

But, this year there are too many telling signs to discard the adage. The stock market is up over 16% since its Christmas Eve 2018 low (the S&P has moved from 2350 to 2900), for its best four-month start to the year in over 3 decades. All indices appear poised to eclipse all time highs. But, it isn’t just the pace and the intensity of the move up. Valuations are entirely out of whack in some favored sectors. For example, casual service restaurant stocks like Starbucks and McDonalds are trading at PE ratios over 25x and PEG ratios over 2x. Some REITs are trading at similar valuations, regardless of asset quality. And, then in the wake of the Lyft, Pinterest and Zoom IPOs, people are no longer speaking about PE and PEG ratios, but instead trying to rationale 15 + Sales – to – Earnings ratios (remember 1999 anyone?).

To boot, there is still so much that can go wrong. While we have heard about the UK and the possibility of a hard Brexit catastrophe for 2 years, the risk is still sitting out there for the second half of 2019 (the new deadline is October 31). Likewise, in the US, over the same period, we’ve worried about an egomaniac in the oval office who appears increasingly irrational and unhinged, and while the economic risks associated with the underlying situation have not materialized, the risks to the market remain. We also seem to have North Korea brewing again.

As the Wall Street Journal pointed out this past weekend, many institutional investors are wondering whether to lock in their gains for the year and go away.

Longer-term investors, unlike many institutional investors, face the risk of being forced back into a market that is still higher at a later date. They also may face significant capital gains taxes. Its hard to sell out of a rising market, but it just might be a pretty prescient move to raise cash now.

See the best savings rates here.

Six months ago, I wrote on BestCashCow about the benefits and disadvantages of No Penalty CDs. At the time, my analysis focused heavily on the opportunity to gain a small amount of yield over savings accounts with no risk and very little inconvenience. So long as you do not need to access you cash for 10 days, the two main drawbacks are that you ordinarily need to close (and reopen) the entire product in order to make even a small withdrawal and you need to monitor rates in a rising rate environment to be sure that you are still earning a competitive rate (BestCashCow makes monitoring rates easy here).

My article was based on the assumption that savings rates would continue to rise in the manner in which the Federal Reserve was guiding at the time and that we would see savings rates over 3% in 2019. Since then, the Federal Reserve has lost its independence from the Executive branch and its most recent guidance indicates that it isn’t going to be raising the Fed funds rate in 2019. CD rates had already begun coming down before the President (directly and through Stephen Moore) and Larry Kudlow launched an attack last week on Jerome Powell, demanding an immediate 50 basis points reduction in the Fed Funds rate in order to combat an inverted yield curve.

It is now highly unlikely that savings rates are going to be increasing as we go through 2019, and it is very possible that they could fall from here. That makes any opportunity to earn a premium over your current savings rate very attractive, and it also makes it attractive to lock in such a rate for around a year. But, you should be hesitant to go out much longer than a year as there is not much of a premium in longer term CDs at the moment and the Fed is still guiding towards a Fed Funds raise in 2020).

As of this writing, you can still find a one-year CD that yield 2.80% or more. You can find those rates online. You can also find them at banks near you and credit unions near you.

In an environment where rates are not going up and where there is a still premium in one-year CDs, the main reason that people resist one-year CDs is the early withdrawal penalties. Most online banks charge a penalty of at least 3 months interest should you require your cash before maturity, and this penalty can invade principal. Some banks and credit union charge more than others for early withdrawal.

No Penalty CDs do not bear the risk of an early withdrawal penalty and enable you to lock in a rate for about a year.

As of this writing there are three interesting No Penalty CDs being offered by major online banks. Purepoint is offering 2.60% on their 13-month, Marcus is offer 2.35% on their 13-month and Ally is offering 2.30% on their 11-month. At each of these banks, these rates not only represent a premium over the comparable online savings rate, but also prevent your rate from falling. You, however, may still find higher online savings rates from other banks, but you’ll bear the risk of falling rates during this year in which the direction and independence of the Federal Reserve has become less certain.

You can always check No Penalty CD rates along with other special term CD rates here.

Editor's Note: On April 9, 2019, Purepoint lowered their 13-Month No Penalty CD rate from 2.60% to 2.50%.