The Wisdom of Old or Not-So-Old Age

The Wisdom of Old or Not-So-Old Age

While Bankrate no longer provides the most accurate and comprehensive information on bank rates (that distinction now belongs to BestCashCow or RatesAndInfo.com), they do sometimes produce interesting surveys.

Their latest survey indicated that 5% of those aged 18 to 37 say bitcoin is the best place to put money they won’t need for 10 years or more, whereas only 1.2% of those aged 38 to 53 favor it for long term savings, and less than 1% of those aged 54 to 72 do.

I myself am not so old, though I do fall into the bracket of people aged 38 to 53.   I cannot imagine what planet the 1.2% of my age cohort would trust bitcoin or any cryptocurrency, and I am startled that so many people who are younger would entrust their savings to these instruments.

While Bitcoin has fallen this year, it hasn’t collapsed completely as many - including myself – had predicted.   It, however, remains an artificial asset, a mirage, and one where $7,000 per coin has no more fundamental value than $0.32.

With age comes the reality that a crisis in confidence in an instrument can cause pandemonium, confusion and widespread selling of assets representing a claim on fairly predictable future cash flows.  History books will tell you that this has happened in 1929 and 1987.   Even in the youngest age bracket, many can remember the internet crash of 2000-01 and the financial crisis of 2008-09.   While fundamental strong assets were often devastated, fake assets (those assets not fundamentally backed by future cash flows) disappeared (eg., Enron collapsed in the aftermath of the internet crash).

To believe that bitcoin represents a store of value is to ignore those lessons and to bet on a constant and indefinite faith in a mirage that ignores fundamentals.   It also assumes that there will be no hiccups in broader financial markets that would cause people to lift the sheets and look underneath.

Investors should stick with savings and money market accounts, CDs, bonds and equities as major components of their financial portfolios.  Not bitcoin.

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Premium in 1-Year CD Rates Over Savings Rates At Highest Point in a Decade

Premium in 1-Year CD Rates Over Savings Rates At Highest Point in a Decade

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

Based on BestCashCow’s computations, the spread between the average online savings rate and the average 1-year CD rate is now approaching 60 basis points.   This means that in return for locking up your money in a one-year CD, you can get a bigger premium over just leaving it in an online savings rate than at any point over the last decade.   In fact, you will likely get as much as 6/10ths of a percent more.

While savings rates have increased in past months, CD rates (including those as short as 6-months) have increased more quickly and more precipitously, as banks set their CD rates based on the Federal Reserve’s guidance for rates and their own economic predictions (which factor into the increased likelihood of real inflation due to Trumpian tariffs).

You can see the complete graph of the spread between one-year CD rates and savings rates at the top of this page.   You can see the most current one-year CD rates on that page.   You should also check 1-year rates at banks near you and at credit unions near you as they may be higher.

In the Fed’s most recent June meeting, it forecast two more rate increases before the end of 2018 – bringing the Fed funds target rate to 2.25 to 2.50% by December.   Jay Powell’s team also forecast a 3.125 Fed funds rate at the end of 2019 and a 3.375% Fed funds rate at the end of 2020.   

Whether one-year CD rates make sense for you personally depends on your own view of the Fed’s guidance for economic developments and on your own personal circumstances.   You should also read BestCashCow’s 65 Questions to Ask Before Investing in a CD.

It is our belief that given the likelihood of much higher savings rates over the coming 12 months, you should err now towards foregoing the premium that one-year CDs are offering and and continuing to invest in online savings accounts or local savings accounts.

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June 2018 Savings and CDs Update: Federal Raises Fed Funds Target to 1.75% to 2.00%, 5 Opportunities to Look At

June 2018 Savings and CDs Update: Federal Raises Fed Funds Target to 1.75% to 2.00%, 5 Opportunities to Look At

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

The Federal Reserve raised the Fed Funds rate by 25 bps to a target of 1.75% to 2% this afternoon. The move marks the seventh such move since the Fed began moving the Fed Funds rate from zero in December 2015, and the second in Jay Powell’s tenure as Chairman.  Barring some sort of dramatic and unforeseen development it won't be the last raise. 

The Fed’s language became more hawkish with the Fed raising median outlook for 2018 since it last meeting.   The Fed is now guiding towards two more rate hikes (instead of 1) before the end 2018 (for a total of 4 versus 3 hikes in 2018).  While the long-range Fed funds forecast remains at 2.90%, the Fed funds rate is now forecast at 3.125% at the end of 2019, and 3.375% at the end of 2020.

Against this backdrop, BestCashCow continues to find savings and money market accounts and short-term CDs substantially more attractive than longer-term CDs and bonds.

Here are five products worth taking a look at:

  1. CIT Bank Online Money Market – 1.85% 

CIT Bank has been around for a long time, and is generally very positively reviewed on BestCashCow.  Over the years, they have always been faster to move their savings and money market rates than others, and their savings rate is currently one of the highest.   With only $100 required to open an account, CIT works for just about everyone.

  1. CIT Bank 11-Month No Penalty CD – 1.85%

If you are a contrarian and believe that savings rates may fall over the coming year, or have seen enough over the last decade that you want to protect yourself from that unlikely eventuality, CIT Bank is also offering a solution for you in the form of an 11-Month No Penalty CD.

While this product pays the same as CIT’s online money market account, it guarantees that it will pay that amount for almost a year.   In the meantime, it can be terminated and moved to the money market account at any time and without penalty.  With this product, CIT is essentially offering depositors a free option.

  1. Radius Bank Online Savings – 1.86% 

Radius Bank is a new entrant to the online savings arena, but seems to be committed to making it work.  The 1.86% online savings rate is only good for depositors who bring $25,000 or more; the bank is worth a look as this account can be easily partnered with a high interest checking account packed with features that can enable depositors to migrate virtually all of their branch banking to online banking.

Editor’s Note:  Radius Bank is an advertiser on BestCashCow.   Please read our Advertiser Disclosure here

  1. Purepoint Bank Online Savings – 1.90%

Purepoint has to be listed here because they currently have a 1.90% online savings rate.   However, Purepoint may not work for everyone as they haven’t always been so fast to raise their rates and they may be focused more on trying to build out a branch network.

  1. Marcus One-Year CD – 2.30% 

While the direction of rates is clearly up, there is little risk in locking some money that you won’t need into a one-year CD, and there may even be a small upside.  Marcus, the online banking division of Goldman Sachs, has recently raised all of their CD rates and is now offering a 2.30% one-year CD.  Marcus is well reviewed by BestCashCow users, and as we noted in our May 2018 note, Goldman Sachs’ ownership and commitment to the space makes it a good and a safe place to do your baking business.

Editor’s Note:  Marcus is an advertiser on BestCashCow.   Please read our Advertiser Disclosure here

Rates can change.  See the latest online savings and money market rates here.   See the latest online one-year CD rates here.

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