August 2018 Outlook: Savings Rates Increasing and Poised to Move Higher – 5 Accounts to Consider

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We’ve entered the long hot days of summer with all sorts of political and economic turbulence on the horizon.

Savings rates have firmed and would seem to be poised to move still higher, with the Fed likely to raise the Fed funds rate by 50 basis points to 2.25% to 2.50% before December. 

CD rates too have firmed, and, as we recently noted in this article, the spread between 1-year CD rates and the online savings rates has widened out to 60 basis points which is the widest it has been in over a decade.   Some will be inclined to reach for CDs with money that they will not need for the next year (see today’s best rates here), but we’d be cautious, even with short term CDs against the current backdrop.

Longer term CD rates are quite interesting.   We now see online 2-year CD rates as high as 2.95%, 3-year rates over 3% and 5-year rates pushing 3.25%.   However, the Federal Reserve’s most recent forecasts continue to guide towards a 3.125% Fed funds rate at the end of 2019 and a 3.375% Fed funds rate at the end of 2020.  With the possibility of a protracted trade war and rising commodity prices causing real inflation, we think rates could be much higher and would be especially cautious here.

So here are five accounts we’d focus on:

Here are five products worth taking a look at:

1. Marcus – 1.85% Online Savings rate

Marcus has outstanding customer reviews and, with its lightening fast ACH transfers, it is a good place to stash cash that you might need to access quickly.  Marcus is also a subsidiary of Goldman Sachs and if you listen to their executives on Bloomberg or CNBC, you’ll see that they have made a real commitment to the online savings and CD spaces.   We doubt they will be doing anything other than raising rates as the Federal Reserve moves.  To boot, Marcus is perhaps the only one of the major online banks where it seems very safe to go well over FDIC-insurance limits.

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

2.  Ally Bank – 1.80% Online Savings rate

Ally has been around for many years and, as reviewed on BestCashCow, is the gold standard in online banks.   It isn’t a bank that is going to raise their rates one day only to lower them (or to stop raising them) the next.  As rates rise, consumers can have full confidence that Ally will always stay competitive.  We also know that they won’t be quietly lowering their savings rates while they give new customers better ones.   Their TV advertisements promise as much.

3. Radius Bank Online Savings – 1.86% (requires balance over $25,000)

Radius Bank is a new entrant to the online savings arena, but has a neat cutting edge user interface.  This savings account is also worth a look as it 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.

4. Ally Bank 11-Month No Penalty CD – 2.00% (requires a balance over $25,000)

We’ve been a fan of Ally Bank’s No penalty 11-Month CD for years.   If you have over $25,000 to invest, it ordinarily offers depositors a light yield improvement over their savings rates.  Like a CD, this product, guarantees that it will pay the 2.00% 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.  You are also protected from the extremely unlikely possibility of falling rates.   With this product, Ally is essentially offering depositors a free option.

  1. Colorado Federal Savings Bank One-Year CD – 2.51% 

If you must reach for a 1-year CD, Colorado Federal Savings Bank provides the highest yield in an account that can be easily opened and funded online.   Their website is not so great, and you will encounter some challenges if you have closed your funding account at maturity, but we think that this is one to look at.  Some others with rates almost as high are listed here. Again, only look at one-year CDs if you really feel you must reach for the yield and read our 65 Questions to Ask before locking into any CD.

Before opening an online savings or money market account, we also encourage you to check local bank rates and local credit union rates.

 


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.


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

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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.


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

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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.


May 2018 Brings Higher Savings Rates – Here are 5 That We Think Will Continue to Go Up

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As we begin May 2018 and approach the second and third meetings of Jay Powell’s tenure as Chairman of the Fed, we are continuing to see savings rates firm up.

While savings rates are improving, they are not where we expect to see them this time next year and still well below any historical norm.  To boot, the yield curve is lacking slope.  So while BestCashCow is the most comprehensive site listing savings and CD rates, we continue to urge caution when it comes to CD rates, especially those longer than one year.  

This month, we’d therefore prefer to focus just on five savings and money market products that we find particularly interesting.   We’re highlighting these products not only because the current rates are attractive, but because there has been some discussion in our conference rooms about banks that offer teaser rates and then lower them.   We don’t believe either that these five banks have engaged in such tactics or that they will be lowering their rates as the Fed moves the Fed Funds rate higher.

So, here are five savings accounts that we would bet will continue to be competitive.

1.   EBSB Direct – 1.80% Online Money Market rate

EBSB Direct is a familiar name to many who have followed the online deposit account space for the last few years.  At various points, they have aggressively courted savers, and this rate represents a consistency in that approach.   Earlier this year, their rate had been 1.57% and 1.44%.   EBSB Direct has great reviews on BestCashCow.  High net worth depositors will appreciate the fact that the rate is extended to all deposits up to $2 million, and that as a subsidiary of East Boston Savings Bank, a Massachusetts chartered bank, DIF insurance covers that amount.

2.   Purepoint – 1.75% Online Savings rate

We wrote about Purepoint in April and we have written about the bank before.  As a subsidiary of one of Japan’s largest financial institutions and as an aggressive player in the US market that seems determined to gain market share, we’d bet on Purepoint to continue to raise rates as the Fed moves.  

3. Marcus – 1.60% Online Savings rate

With generally outstanding reviews on BestCashCow, we think that Marcus is a good place to stash cash.  Marcus is also a subsidiary of Goldman Sachs and if you listen to their executives on Bloomberg or CNBC, you’ll see that they have made a real commitment to the online savings and CD spaces and we doubt they will be doing anything other than raising rates as the Federal Reserve moves.  To boot, Marcus is perhaps the only one of the major online banks where it seems very safe to go well over FDIC-insurance limits.

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

4.   Personal Savings by American Express – 1.55% Online Savings rate

Amex’s online savings product was once the highest rate around in 2009 and 2010 when they were offering 0.90% while other rates had fallen below that level.  While Amex hasn’t been as quick to raise rates out of the zero-rate environment as many others have, their reviews on BestCashCow indicate that they provide outstanding customer service.  It certainly isn’t a bank that is going to be treating its current long-standing savings customers any worse than new customers.

5.   Ally Bank – 1.50% Online Savings rate

While Ally occasionally offers some great 11-month No Penalty CD products, the rate on their savings account has trailed their competitors a little bit for the last half a year.  That’s OK, because we have every bit of confidence that Ally will always remain among the highest offered savings rates.  We also know that they won’t be quietly lowering their savings rates while they give new customers better ones.   Their TV advertisements promise as much.

Before opening an online savings or money market account, we also encourage you to check local bank rates and local credit union rates.


The Six Biggest Crimes of Online Banks

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

It has been over 15 years now since I opened my first online savings accounts with ING Direct (now Capital One 360) and HSBC Direct (now HSBC Advance).   In that time, I have experienced a lot of different service levels and experienced certain frustration (many that I share with BestCashCow readers as I see from the comments on our tables).  

Let me begin by saying that I can deal with not making my funds immediately available through long hold times, although 10 business days at Sallie Mae Bank is the absolute maximum I will tolerate.  I can also deal with ACH transfers that take a couple of days, although I find Marcus’s and Purepoint’s immediate outbound transfers to be a real selling point versus their competitors.

What I cannot deal with are the following.

1. Touching my Money with Silly Fees.  A paper account maintenance fee that users cannot get out of is a pure outrage in an online bank (Incredible Bank).   Even with a deposit of $250,000, it reduced the interest earned by about 5% a month (and much more than that for lower deposit amounts).  While I am not aware of any banks that are currently charging outbound transfer fees, I have seen banks in the past charge fees of $3 to $5 per transfer.   I find it attractive when a bank like Marcus says “We will never ever charge you a fee”.

2. Limiting my Ability to Access My Money.   While I am a co-founder of BestCashCow, I have never ever had my portfolio entirely in cash.   Rather, I am a self-directed investor who frequently needs to access my cash in order to buy bonds and equities.   The very nature of a savings or money market account is that you are getting liquidity.   A CD sacrifices liquidity.  If I need $100,000 from a savings account, and a bank tells me that I can only have $3,000 right now, I find it patronizing and condescending regardless of their savings rate.  I have seen this a lot from some of the lesser known banks on BestCashCow’s tables, but the major online banks (Marcus, Synchrony, Ally, Purepoint, CIT, Barclays, Amex) have never played this game.

3. Not Providing a Fully Functional Website.  The major online banks are competing to provide the best interfaces and the best mobile apps (at the moment, I believe Ally has the best mobile apps).  But, some banks cannot even seem to offer a working website with high availability times (for example, Banco Popular).   Others are angling for your deposits with websites that haven’t been enhanced since 1998 (IGobanking, VirtualBank, Colorado Federal).   It is 2018 already!  I might be inclined to open an online CD with a bank that doesn’t offer a fully functional website, but I wouldn’t put my savings and money market money in one that doesn’t.

4.  Not Showing Inbound Transfer Information Instantaneously.   When a online bank takes $500 from a corresponding bank, that information should be listed immediately as a credit to the online account or at the very least as a pending inbound transfer.  With some smaller online banks, I’ve had to make a phone call to confirm that they have drawn the money and will credit me.   That’s time on the phone that I could be spending doing something else.

5.  Providing limited phone support.   The great news here is that with most of the major online banks, it is virtually never necessary to pick up the phone to speak with someone.  However, if you ever need to, it is nice to know that someone is there.  I have been surprised by the absence of phone hour support at some major online banks on the weekend (eg. Sallie Mae Bank).  But there are comments in the BestCashCow tables from users who have been simply unable to access phone support at some of the smaller online banks (AbleBanking, VirtualBank).

6. Excluding existing customers from receiving the best savings and money market rates.   I have saved the one fault that I really find terribly outlandish until the end.  Now that rates are rising, some banks have found it profitable to advertise their new rates, but continue to give existing depositors a lower rate.   Of the major online banks, only CIT Bank has incorporated this game into their business model (even now drawing customers in with a savings rate and then to turn and offer a still higher money market rate to new customers).  The good news with CIT is that they do allow you to “upgrade” to the higher rate with a phone call.  Other banks (like Flushing Bank, through its IGoBanking and BankPurely subsidiaries) require that you apply for an entirely new account to get the higher rate.  Still others simply treat existing account holders like pariahs (BestCashCow and our affiliates do not classify Salem Five as an online bank as a result of their long history of quietly lowering the rates that they provide to existing customers without providing any disclosure or evidence of the new rate on their website, as well as their violations of numbers 1 and 2 above).

Now that online savings rates are going up so much faster than those of the major money center banks (Citibank, Chase, Wells Fargo and Bank of America), opening an online savings account as a place to stash your cash makes more sense than it ever has before.  But, you should also carefully consider the experience of others.   For this reason, we recommend looking at the star system and the comments provided by other BestCashCow users with a bank listing on our rate tables.

Always check savings and CD rates from banks and credit unions near you.

The above article mentions online banks that have been or are current advertisers on BestCashCow and our affiliates.   Please read our Advertiser Disclosure.