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Online Savings & Money Market Account Rates 2021

Online Savings & Money Market Account Rates

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Citibank and Bank of America Merrill Lynch Make Earning No Interest Sexy, If You Also Hold Their Travel Credit Cards

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In this low interest environment, the major money center banks have been offering next to nothing in interest for years. Citibank and Merrill now give you a reason to keep your cash with them.

It is tough to earn next to nothing in a savings account and be excited about it.  Provided you keep $100,000 in total assets with Merrill Lynch or $50,000 in cash with Citibank, you can now make up a lot of lost interest in the form of travel rewards by pairing your account with credit cards that extend certain benefits for preferred customers.

The Bank of America Travel Rewards card offers 1.50% cash back in the form of a direct credit on travel expenses for each dollar spent on the card.   While this offer does not compare favorably to other travel and rewards cards on its face (see the best cards for spend here), the cash back amount is augmented by 75% for those holding balances over $100,000 at Bank of America, Merrill Lynch or Merrill Edge accounts (whom the bank designates as Platinum Honors for credit card purposes).  The 75% augmentation takes the cash back percentage to 2.65%.  While BestCashCow’s own rankings indicate that other travel and rewards credit cards offer value on spend in excess of 3%, the 2.65% return on spend is well in excess of what is offered through any cash back program.  It is also highly desirable for those seeking maximum flexibility in how they redeem spending credits that they have earned through their credit cards as it does not require membership in an air miles or hotel point program, or trying to find those rewards through the program that maximize redemption value.   You’ll also get 10,000 points – worth $100 – just for signing up for the card.

While qualifying for Bank of America’s Platinum Honors status does not make sense if you are holding $100,000 in cash at virtually no interest, it can make a lot of sense to hold and use this card if you qualify through holding equities, debt instruments or other securities in a Merrill or Merrill Edge account.

Full details on the Bank of America program and what is required to qualify for Platinum Honors status are available here.

Citibank offers the Prestige Card that delivers 3 points for travel (including gas), 2x for restaurants and entertainment and 1x for everything else. rates this card and the Citi ThankYou Premier card, its first year no fee sibling, as outstanding travel and rewards cards for recurring spend and for their 50,000 point sign up bonuses.   In particular, sees at least 3 cents per point in value on Singapore Airlines Krisflyer, but points can also be worth 1.6 cents each when redeemed against charges from American Airlines.

For a $450 annual fee, the Prestige Card offers an array of benefits including a $250 annual air travel credit (which over two years more than covers the fee), entry to American Admirals club, global entry reimbursement, a fourth night free on consecutive hotel stays and four rounds of golf that the regular ThankYou Premier Card does not offer (read more on the difference between the two cards here).  For those with CitiGold status (ordinarily $50,000 in account balances), the points earned through the Prestige Card are augmented by 15% so that travel earns 3.45 points, restaurants earn 2.30 points and everything else earns 1.15 points.  Moreover, the annual fee is reduced to $350 and the signup bonus increased to 60,000 points (although it should be noted many non-Citibank account holders have reported getting these benefits simply by applying for the card in a branch).  The reduced fee and the increase in points make an already outstanding travel and rewards card still better for Citigold members.

Full details on qualifying for CitiGold are available here.

The augmented credit card rewards that Bank of America and Citibank are offering to their cardholders who maintain qualifying accounts are interesting.  However, before account holders at these banks rush into these cards, it makes sense to run the numbers, comparing these cards with the rewards that you might accumulate through other credit cards.  If you are qualifying by holding cash, you should also factor in the loss of interest you would otherwise be earning.  Leading online banks pay over 1% more in interest in the savings accounts (see the best rates here). 

Compare travel and reward credit card sign up bonuses.

Greek Default, Puerto Rico Debt Service Problems to Have Little Effect on US Rates

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Greece lies on the brink of collapse. Puerto Rico debt obligations are all going to be restructured. Even if the worst case were to materialize (both default), US interest rates are not headed for a dramatic decline or even a retest of recent lows. They are headed up.

The news is pretty bleak, but I still don’t believe that Greece will default.  I certainly do not believe that Puerto Rico will default.  In Greece, the institutions that hold these bonds (now German banks and US hedge funds) are too sophisticated to force a situation where they receive nothing, than to allow a situation where they recover a restructured bond.   The voting electorate is also too smart to vote for a continuation of the utter chaos they will see this week.  Same will be true in Puerto Rico.  Everybody will back away from the brink. These places are simply not analogous to Russia or Thailand in 1997, or Argentina more recently.

If we were to see a Greek default, there will be increased dislocation and volatility in the equity and debt markets.  The reality however remains that Greece is such a small part of the European economy, it will not have a major impact on anything.  Austerity in Europe will probably continue, but the US will continue its path towards pulling out of the low interest rate environment that we have been in.  In short, Greece is just to small and inconsequential and events there are not going to cause the rush to safety in the US that would drive long term bond yields back down.

I predict that interest rates will continue to rise towards a more normalized level with Janet Yellen and the Fed still on track to raise interest rates in September or October.   The 10 year Treasury will end the year closer to 3% than to 2% and savings rates will continue to move up gradually.  The bond bubble will begin to burst and this is a good time to favor cash over bonds.

Find the best savings rates here.

Time to Get Serious About The Bond Bubble Bursting

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As 10 year bond yields have gone from 1.80% to 2.15% over the last month, Janet Yellen, Bill Gross, Jeffrey Gundlach, Scott Mather and many others have made statements indicating that the bond bubble may finally be ready to burst. It is time to get serious about the potential consequences of the bond bubble bursting.

In 2013, the 10-year bond went to a 3.05% yield briefly.   Many traders who were heavily long fixed income got really hurt when this happened, but the general public was spared from the consequences of a end of cheap money as cash from global markets began pouring into the US to drive rates back down.

At this point, many experts are indicating that the current 10 year yields are well below where they should be at this point in the economic cycle and they should begin to move off of the unnatural post-recession lows that we have seen for the last 6 years in anticipation of a change in Fed policy.  Janet Yellen, herself, has indicated that the cycle of unnaturally low interest rates needs to come to an end and that when it does long term rates may spike higher.  High profile observers – including Bill Gross, Jeffrey Gundlach and Scott Mather - have all been quoted in mainstream financial media over the last several days as suggesting that as the Fed begins to raise rates, long bonds will go up more quickly.   Even if the rise in the Fed Funds rate is extremely slow and deliberate, 10 year rates will wind up back to 4% or 5% over the next year or two.

This is a good time to confront reality.  If 10 year rates were to go back to 4 or 5% (or 6 or 7%), the discounted present value of that cash produced by instruments that you may hold will become less valuable (i.e., will become discounted at a higher rate).   The value of long-term municipal bonds will fall.  Corporate bond spreads will widen, not narrow, and the value of corporate (high grade and high yield) bonds that you hold will fall sharply.  The value of your emerging market bond and EM bond funds will fall dramatically, as will the value of any preferred stock that you may hold (including Public Storage’s preferred stock that I have previously recommended). 

I do not pretend to be a real estate or a stock market expert, but it would seem that your real estate and equities will impacted as well.  Real estate values in frothy markets like New York, San Francisco and Miami may fall from their bubble levels as mortgage rates rise.  Stocks – including Blue Chip stocks such as Disney, Procter & Gamble, McDonalds and Coke – that trade at extremely high, above-market multiples of earnings against anemic growth will see a sharp correction.   (The broader market however may move higher and fast growing, dynamic growth stocks with large cash stockpiles, very low PE ratios, and PEG ratios below 1 such as Apple and Gilead should be virtually unaffected and continue to move dramatically higher).

This is probably not the time to sell your home or exit the stock market.  But, it is a good time to think about some key things you can do to protect yourself from a rise in interest rates.

1.  Think about raising cash, selling your bonds (except for those nearing maturity), bond funds, bond like instruments, and stocks with unsustainable valuations.  Earning 1% a year over the next two years is a better outcome than losing 20% or more of your principal over that period.    If you still aren’t earning 1% on savings, see this list of the highest yielding savings accounts.

2.  Put money in CDs.  You can earn 2.25% on a 5 year CD from Synchrony or Barclay’s Bank that allows only a six month interest penalty for early withdrawal.  As this article discusses, that is a pretty reasonable risk-reward scenario.  Alternatively, put your money in a CD that offers a better rate than cash and provides the opportunity to raise your rate should rates rise.  CIT Bank’s family of RampUp CDs are not only among the highest yielding CDs, but offer this flexibility.

3.   Invest in structured notes that are geared to pay out more money as interest rates rise.  I have written extensively about these notes on BestCashCow.  My favorite notes are those that pay a multiple of the spread between the 2 year and the 30 year Treasury (or Constant Maturity Swap) rates.  While this notes usually require assuming the credit of a bank, such as Chase or Morgan Stanley, they are currently paying around 6% and would move to paying their maximum distribution amounts of 9% to 10% should the interest rate spread widen.   These notes may not always be offered in primary markets and can be difficult to find in secondary markets.  Read my earlier articles on these notes here or here.

Happy investing.