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Fed Hikes 25 Basis Points In Jay Powell’s First Meeting as Chairman

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The Federal Reserve raised the Fed Funds rate by 25 bps to a target of 1.50% to 1.75% this afternoon.

The move marks the sixth such move since the Fed began moving the Fed Funds rate from zero in December 2015, and was unanimous.   While the Fed did not raise its outlook for 2018 (the median forecast remains at a total of 3 hikes), it raised its Fed funds rate forecast to 2.75% at the end of 2019 and 3.40% at the end of 2020 (the long-run forecast was also raised to 2.90% from 2.75%).

The Fed’s decision to raise to a 3.40% Fed funds forecast basically assumes an additional 2 more 25 basis point hikes over the next three years than it had guided to previously.  Interestingly, it is making these forecasts at a time when it also does not see inflation rising much above 2% between now and the end of 2020, and sees the unemployment rate falling from its current 4.1% level all the way to 3.6% in 2019. 

Unforeseen economic events can often cause the Fed to quickly change policy.  In this case, however, the Fed is guiding towards a faster pace of action against both the assumption of a very stable inflationary environment and the increasing likelihood of economic disruption caused by an unhinged President Trump.

We would, therefore, continue to be very, very cautious about locking into CDs longer than 1-year right now.  

5 Savings and CD Accounts to Take a Look at In March 2018

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Savings and CD rates continued their climb towards the end of February.  We expect rates to continue to go up into Jay Powell’s first meeting as Fed Chairman.  Powell’s testimony in front of Congress this week has made very clear that he will be a hawk and not a dove.  Interest rates are going up 3 times, maybe 4 and maybe even 5 before the end of 2018.  While we cover long-term CDs, we have never been as adversely inclined towards them as we are now.

Here are 5 related products that have caught our attention as we begin March.

1. Dollar Savings Direct – 1.80% Savings Rate

Dollar Savings Direct is a subsidiary of Emigrant Direct.  As we noted last month, DSD has been way ahead of the curve in raising their rates as rates have been increasing.   On February 27, 2018, they raised their savings rate by 20 basis points from 1.60% to 1.80%.   It continues to be a fairly solid bet and user reviews are generally good.  We’ve been made aware that they cannot link for ACH transfers with Morgan Stanley (UMB Bank) and Merrill Lynch.   And, given Emigrant’s troubles over the last decade, we’d be very careful to stay within FDIC insurance limits.

2. Popular Direct – 1.65% Savings Rate

Popular Direct is a subsidiary of Banco Popular North America, a bank that had real troubles in 2009 and been the subject of recent acquisition rumors involving some major Spanish banks.  The online bank’s website was recently revamped, and we think it could be worth a look, although we again urge you to be very careful to stay below FDIC insurance limits.

3. Marcus – 1.50% Savings Rate

Marcus is the new name for Goldman Sachs’s online bank.  While the rate isn’t so attractive at 1.50%, if you want to open a bank account at a place where you will feel comfortable occasionally exceeding FDIC insurance limits, Goldman Sachs is the one.

4. Live Oak Bank – 2.10% 1-Year CD rate

While we want to be cautious about CDs, Live Oak Bank’s 1-year CD continues to be the best nationally available online CD rate.  If you must submit to your desire to pick up a couple more basis points, this is the one to go for, especially since their early withdrawal penalty is only three months’ interest (other banks have more onerous penalties) and you will be able to get out with little damage if rates really start to move dramatically higher quickly this spring or summer.

5.  Capital One 260 – 2.65% 5-Year CD rate

Again, we certainly aren’t recommending a 5-year CD at this point in the cycle.  But, if you feel that rates aren’t going to get much higher and want to get into a 5-year product, this is the one we would recommend at the moment, especially since Capital One’s early withdrawal penalty for their 5-year CD is only 6 months’ interest (many other banks have penalties for early withdrawal of 5-year CDs of one year’s interest or even more). 

The great thing about the above rates is that they are all readily available online.  However, brick-and-mortar banks and credit unions are also becoming rate competitive.

Here you can check the best savings rates for local banks and credit unions where you live.   CD rates for local banks and CD rates for credit unions can also be checked here.

Five Reasons to Raise Cash Now

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You have probably been making a lot of money in stocks for some time now, or are jealous of those who have while you sat on the sidelines.  However, there are reasons for raising cash in your portfolio right now.  Here are five of them.

Stock Overvaluation

Just because stocks are expensive doesn’t mean they are going to decline.  However, when they do fall they will likely fall significantly allowing those with cash to purchase stocks at much cheaper prices.

Rising Interest Rates

Interest rates are rising which means that your bond portfolio is likely to lose value.  In addition, credit spreads are minimal so you are not getting paid for the risk you are taking when buying corporate bonds over government bonds.

Rising Rates, Part 2

Returns on CDs and money market accounts have been rising because the Federal Reserve has been raising short-term rates for 2 years.  Rates are not enough to keep you ahead of inflation, but they are no longer effectively zero, allowing patient investors at least some nominal return while they wait for a great opportunity.

Cryptocurrency Hysteria has Abated

For a while Bitcoin and other cryptocurrencies were going straight up.  It seemed like a good idea if you were keeping cash that you should be buying cryptocurrencies and have someone buy them from you at a higher price at a later date.  That trade was never risk-free. 

Liquidity Could Dry Up

Although this is unlikely in the near term, there are times when asset prices plunge because there are simply no buyers.  Would be buyers are not sitting on enough cash and buying an asset, no matter how attractive, is reliant upon selling another asset.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Securities offered through Kestra Investment Services, LLC.,(Kestra IS) member FINRA/SIPC.  Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.  J Matrik Wealth Management is not affiliated with Kestra IS, Kestra AS, or Five Star Professional.

Five Online Savings Accounts and CD Accounts to Consider in February 2018

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Rates are clearly going up now.  Whether you have extra cash that you are looking to move from a bank paying basically nothing or are removing money from a volatile stock market, here are some places to consider putting your money today. 

The great thing is that these five offerings is that they are all online offerings that enable you to make more on your money without getting off the couch.  However, you should note that some brick-and-mortar banks and credit unions are also becoming rate competitive.

Always check the best savings rates for local banks and credit unions where you live, and the best CD rates for local banks and credit unions where you live as you may find better rates there.

But, here are five very interesting online products.

1. Dollar Savings Direct, A Division of Emigrant – 1.60% Online Savings Account

Dollar Savings Direct is one of several Emigrant subsidiaries that we have seen over the last decade.  These days Dollar Savings Direct is their most aggressive savings account.  As savings rates increased in late 2017, Dollar Savings was always ahead of the curve, and while there are others who have now matched their rate, it seems like a safe bet to assume that they will continue to be aggressive as rates rise. 

Dollar Savings Direct has good user reviews on BestCashCow and we recently wrote about the bank here.  

2. Purepoint MUFG Union – 1.60% Online Savings Account

Purepoint entered the online banking arena in 2017, and while they have been slower to raise rates that many of their competitors, they recently catapulted their savings rate up to 1.60% provided you maintain a $10,000 balance.

Purepoint has good user reviews on BestCashCow (hyper: ) and stands out for the speed of their inbound and outbound ACH transfers.  We recently wrote about the bank here.  

3.  Live Oak Bank – 1.60% Online Savings Account

Live Oak is a new entrant to online banking.  This relatively small North Carolina bank has entered with a very aggressive online savings rate.  There are very few reviews on BestCashCow so far, and they are not universally great, but we think that the fact that they are aggressively courting new deposit accounts makes them worth a look for savings.

4. Live Oak Bank – 2.10% One-Year CD Account

As we wrote recently, we want to be pretty cautious about CDs in a rising rate environment, especially one where rates may now be poised to rise quite quickly.  But, if you are inclined to lock in for the next year, Live Oak has the best 1-year rate at the moment and their early withdrawal penalty on a 1-year CD is only 3 months’ interest.

5. Sallie Mae Bank – 2.00% 1-Year CD

Sallie Mae’s early withdrawal penalty on a one-year CD is also only 3 months’ interest.  There are user reviews on BestCashCow where users cite as an issue unduly long periods before money clears and is credited to their account.  However, if you open a CD funding it directly from an external account, you will begin earning interest on it immediately (and maturity will be one year from that date of opening), even though the principal may not have technically cleared. 

These are the places where we would look to put new money to work now.

Bitcoin Cannot Get to Zero Fast Enough

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The stock market is coming off of its most recent highs quite dramatically, and CNBC is full of pundits trying to explain its fall and guess about its future.

People who loose money in the market today will no doubt have opportunities to recover their losses over time, depending on their time horizon.  The stock market may have moved to an extreme valuation, but it isn’t a fraud or a bubble.

What is clearly a bubble, however, is all of the coins and cryptocurrencies that have popped up.   I have been startled to see them advertised on Facebook (Facebook has since taken these ads down) and to see some of my LinkedIn contacts pushing all sorts of obscure worthless digital tokens.

It is also quite startling that the mainstream media has been celebrating bitcoin rather than pointing out where the fraud occurs.

The New York Times had a great article about fraud in the crypt space yesterday, painting a clear picture of the exchanges and the coins as an out-and-out con. 

But, let’s not forget that the rest of the mainstream financial media has been celebrating bitcoin. 

Bloomberg interviewed a child in his pajamas.

The CNBC Fast Money crowd recently allowed their platform to become an open discussion of bitcoin to etherium.

What is clear from the NY Times’ article is that bitcoin and all of these crypt currencies are going to be publicly exposed as frauds by the SEC and the Commodities Futures Trading Commission.  Many their hucksters may even wind up in jail.

There are going to be a lot of people who are going to be hurt and hurt badly in this in this arena.    With the mainstream media allowing a fraud to be perpetuated, the only protection for most investors is for bitcoin to go to zero before they are tempted by any of this. 

What is the Difference Between A Savings Account And A Money Market Account?

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Savings accounts and money market accounts are extremely similar account types.  In fact, they are so similar that BestCashCow lists them together.  Both are basic ways to stash cash while keeping it accessible (they are liquid accounts).   But that isn’t where the similarity ends - both savings and money markets are insured up to $250,000 by the Federal Deposit Insurance Corporation (or FDIC) at banks, or the National Credit Union Administration (or NCUA) at credit unions.

Most importantly, both savings and money market accounts pay interest – sometimes a high yield – and are therefore appropriate places to hold enough cash for a rainy day in any environment, and can be attractive places to hold cash versus stocks or bonds depending on your outlook for the economy.

Accountholders of both savings and money markets can avoid any sort of monthly fees for a very low minimum deposit (as low as zero).   See a list of the best online rates with the minimum amount necessary to avoid fees here.

Federal regulations may limit savings and money market accounts to six transfers per month (including internet, telephone, etc.), and no more than three of those can be by check, draft or debit card.  The account holder can make unlimited withdrawals by teller, ATM or by mail (or by ACH instituted from an external institution).

Where a money market account is different from a savings account is that it adds some of  the benefits of a checking account, enabling certain check writing services.   However, some banks automatically link high-yield savings accounts to matching checking accounts in order to provide the same service.   Regardless of whether you are opening a money market account, you may need a separate checking account to perform essential checking and bill payment services (see the best free checking account options here).

In short, we at BestCashCow do not believe that depositors need to be concerned at all about whether they are opening a savings account or a money market account. We think that depositors should look for the best rates and best service.  That can come from online banks or it can come from brick and mortar banks near you.

See the best online rates or see the best local rates near you.