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Bask Bank, American Airlines AAdvantage Miles, Silliness?

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Editor's Note: This article was originally written in December 2019 when Bask Bank had a soft launch of its new American AAdvantage product.   In January 2020 after Bask Bank released the full details of the product, the author realized that the Bask product is extremely compelling and updated this article to reflect that.

Several years ago, when interest rates were below 1%, many people opted to earn American Airlines AAdvantage miles instead of interest through a savings account program offered by BankDirect, a subsidiary of Texas Capital Bank.   I had recommended that people close their American Advantage miles – earning savings accounts at BankDirect when BankDirect substantially reduced the value of the program in 2013.  

In November 2019, several readers wrote to BestCashCow, perhaps aware that we had recommended the BankDirect program in 2013 and years prior.   These readers were upset by a letter that they received from BankDirect informing them that their American Airlines mileage accounts would be sending 1099-INT forms from 2020 onwards to the IRS to report on imputed value of the miles awarded to them.   I honestly believed that these readers were being silly to think that they could expect to get anything of value without a 1099-INT.    I learned that BankDirect and Texas Capital Bank will be reporting AAdvantage miles at a 42 basis point value or 42/100s of a cent.  

While investigating the 1099 matter, I also learned that Texas Capital Bank, BankDirect’s parent bank, was intending to offer a new AAdvantage program at Bask Bank, a new subsidiary, which would be akin to the pre-2013 program offered by BankDirect that we had once recommended.

The new Bask Bank savings account is instantly recognizable as being similar to the earlier BankDirect savings offer.  Bask’s offer is geared to deliver 1 AAdvantage mile for every dollar held on deposit over the course of a year.   If your account has an average balance of $100,000, you will earn 100,000 AAdvantage miles over the course of the year in the form of 8,333 miles a month.   Unlike the earlier BankDirect program, Bask Bank has no account service fees.   

When the details of the new Bask Bank offer were finally revealed in January 2020, it became clear that bonuses offered by Bask make it substantially more attractive.   In addition to offering 1,000 AAdvantage miles for funding an account, Bask is offering an additional 5,000 miles for maintaining a $1,000 balance for one month.   But, it is the additional offers that allow things to really add up.   $25,000 held on deposit for one year earns a 10,000 mile bonus, $50,000 earns a 20,000 mile bonus and $100,000 earns a 40,000 mile bonus.    As a result of the bonuses, the same $100,000 maintained at Bask Bank will earn 146,000 AAdvantage miles over the course of a year ($50,000 will earn 76,000 miles).   You will need to maintain your balance above these levels.

BestCashCow shows that one-year online CDs are still available at 2.25% and many 1-year CDs offers by local banks and local credit unions in some markets are above that level.  Savings rates are now much lower than 2%.

For purposes of this example, let’s take a look at the value of the 146,000 AAdvantage miles that $100,000 will earn.    In BestCashCow's travel rewards credit card section, we routinely see that it is easy to find redemption values for American Airlines miles that have a value well over 1.80 cents per mile.  Therefore, as a base case, we believe that you are getting at least $2,628 in value in the 146,000 miles.   That is above the value you will get from depositing the same $100,000 in a savings or CD account over the next year.   (And, by the way, the reported tax liability of these 146,000 miles will only be $613.20).

There are circumstances where these AAdvantage miles will have much more value.   For example, I have redeemed American Airlines miles for  expensive long haul business class tickets on American to Hawaii or to Europe on British Airways, Iberia or Finnair where I see values well over 4 cents per mile.   (Qantas, Qatar, Cathay Pacific are also American Airlines partners where valuable redemptions can be found).     Even if you don’t choose to redeem American Airlines miles for lavish trips abroad, the miles make sense to hold as an “alternative” currency as they can also be redeemed last-minute (and otherwise very expensive) tickets for work or family needs. 

There are some risks to the Bask Bank account.   The first one is that interest rates go to zero and Bask Bank cannot maintain the current payout rate, but you will bear the risk of falling rates in a savings account.  The second risk is that AAdvantage miles become devalued, and I believe that is a risk worth taking as American Airlines has a track record of decades of protecting the value of their loyalty program since it has real value to them as a going concern.

Ordinarily, I’ll always recommend taking interest in the form of cash over some other instrument.   But, in this case, I think it is silliness to be dismissive of the Bask Bank offer without looking at it carefully and how it might work for you.   In fact, I already opened an account, even though I already have over 1 million American AAdvantage miles.

Be Careful With Savings Products from Credit Karma, Wealthfront, Betterment and SoFi

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The last few months have seen the emergence of non-bank savings products that purport to be FDIC-insured often to amounts higher than the FDIC limits that online banks are able to offer ($250,000 for individuals, $500,000 for couples).

Whereas we saw neo-banks emerge in late 2017 and early 2018 as all sorts of other non-FDIC insured products were offered, these latest products are offered by large roboadvisors and the like and target high net worth investors.

BestCashCow cannot guarantee the application of these FDIC limits, and advises they all be avoided until more clarity is provided by the institutions and by the FDIC.

The products that concern us are as follows:

  1. Credit Karma Savings

Credit Karma is known for its free credit-scoring services and nuisance emails to those who register.   It announced in November 2019 that it has partnered with a series of national banks to offer a competitive online savings product with FDIC insurance up to $5 million.  The product has been initially offered with a starting 1.90% rate.

Our concerns: If you read the fine print, Credit Karma states that the product is offered by MVB Bank and not by Credit Karma.  It also explicitly states that FDIC coverage does not apply until they move your money to one of Credit Karma’s so-called network banks and that your actual FDIC insurance limit may be lower than $5 million if they do not move it (presumably, much lower).   Credit Karma would have to have at least 20 network banks to provide coverage to $5 million, and they don’t disclose who the network banks are.

  1. Betterment Everyday

Betterment is a roboadvisor targeting young investors who are unable to understand simple ETFs and no load mutual funds.  Its Everyday Cash Reserve program is designed to deliver a competitive savings rate for an individual up to $1 million by dividing deposits between four so-called program banks.   Betterment has a list of twelve banks from which a depositor’s four program banks are selected.    As of the day that this article is written, Betterment is offering 1.85%.

Our concerns: Betterment itself states that this program is intended only for cash that you are deploying in Betterment products (The SIPC covers up to $500,000 a cash that is in brokerage accounts and intended to be invested in investment products anyway).  The list of program banks may include one or more that is defined as at risk by the FDIC.   The full amount of your money is at risk during transfer periods and when it is not held by program banks.  If you have another accounts with a program bank, your total deposits at that bank are only insured to $250,000. 

  1. Wealthfront Cash

Wealthfront is a more refined, California-ish version of Betterment, but equally unnecessary for investors with even the most basic investment understanding.   Their savings product is similar to Betterment’s, except that their list of program banks is limited to four so you will always know where your money is deposited.   You can also opt out of individual program banks if you already have deposits at that account.   Wealthfront is currently offering 1.82%.

Our concerns: Our concerns about Wealthfront’s savings program mirror those we have with Betterment’s.

  1. SoFi Money

SoFi is the company that advertises all over the place about helping to get millennials out of debt and recently became a broker dealer.   Again, their product is similar to Betterment’s, except that their list of program banks is limited to six so you will always know where your money is deposited.   SoFi Money is currently offering only 1.60%.

Our concerns: Our concerns about SoFi money mirror those above.

5.  Others - Robinhood, Empower, Etc.

Robinhood, the trading app that tried earlier to offer a savings account entirely insured by the SIPC, and Empower, the financial coaching app, also offer similar savings products, but these outfits are so silly and the products are not competitive so depositors and investors should not be considering these.

Bottom Line:  There is really no need to play with these   Online banks provide complete FDIC coverage up to FDIC limits with no ambiguity. To boot, there are many that still offer much higher savings rates than these companies are offering.   Plus, they also offer short-term CDs with much higher rates.

November 2019 Update – Getting Harder and Harder to Get Excited About Cash

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The Federal Reserve lowered the Fed Funds target to 1.50% to 1.75% on October 31, marking its third rate cut this year and causing many of the most recognized online banks to lower their savings’ offers below 2%.

The paradox is that the points where it is hard to get excited about cash are those where most banks are lowering their rates and where it becomes more important to be sure that you are maximizing your returns on cash.

And, the reality is that you can still get over 2% APY in online savings and money market accounts from online banks.   As of today, BestCashCow shows over 30 online savings and money market accounts that deliver over 2%.    Of course, all of these banks are safe for deposits up to FDIC limits, but those who insist of depositing assets only with well-recognized names will find that a solid list includes names such as HSBC, Salem Five and Live Oak.    And, of course, you may still find high savings and money market rates at banks and credit unions near you.

Check local savings rates here.

Check local credit union savings rates here.

We’ve written about No Penalty CDs before as a way to lock in a higher rate than savings accounts offer, without risk.   While rates of these instruments have fallen, those who have savings accounts at Marcus, Purepoint, Ally or CIT should still consider moving their money into these products for a slight boost and to protect against the possibility that Trump is not removed from office and rates continue to fall in 2020.  See No penalty CD rates here.  

One-year CDs continue to offer a premium over savings accounts for those who do not anticipate needing access to their capital.   Sallie Mae and Live Oak Bank are still offering 2.35% and 2.30% APY, respectively, and these accounts have early withdrawal penalties of only three months’ interest.   CIBC Bank is offering 2.25% with an early withdrawal penalty of one month of interest.   Again, you may find better rates locally.

Check local CD rates here.

Check local credit union CD rates here.

Finally, it is worth noting that we still see online 2-year CD rates as high as 2.60% and 5-year CD rates as high as 3.00%, and these products could be interesting for those who think low rates are here for some time and do not require access to their capital.

Have a great month and Happy Thanksgiving!