5 Things to Consider As Savings, Money Market and Short-Term CD Rates Collapse

We are receiving multiple emails every day from BestCashCow's readers who are furious about the pace of falling savings rates, money market rates and short-term CD rates. While we are the most comprehensive and up-to-date source of these rates, we are not setting Fed policy or even having input into the rates at a single bank. So, we are sorry that you opened an account at HSBC when they were offering 1.60% APY two weeks ago only to learn that you were earning 1.01% APY by the time that you had it funded. But, as you are no doubt aware if you are paying attention to the news (not FOX news, but real news), there are people who are dealing with much greater hardships right now.

Here is what you can do with your cash going forward to try to protect yourself from savings rates that look poised to fall below 1%.

First, look at No Penalty CDs. We’ve recommended No Penalty CDs for years. They are a no lose situation since they lock in a rate of return, and allow you to cancel without a penalty anytime after one week. Today, they are being offered by at least 6 banks: Ally, Marcus, Purepoint, CIT, CitizensAccess and CFG Bank. An individual can protect their interest on up to $1.50 million in cash over the next years without going over FDIC limits. A couple can protect up to $3 million. See the rates on No Penalty CD and other special CD products here.

Second, consider 1-Year CDs. Rates are probably going lower as we lead up to the election. A 1.35% one-year CD is not attractive, but it is still better than zero. And, remember that as rates come down, so too do the penalties for early withdrawals as they are ordinarily set in terms of three-months or six-months interest. Some local banks and credit unions may be offering higher rates. You should check those as well.

Third, avoid the temptation to chase much higher rates in products where the return is not guaranteed. Anyone who ever invested in stocks like Teva, CenturyLink, GE or Kodak will tell you that dividend chasing is a fool’s game. And, chasing structured instruments that could yield high returns but could also yield zero while impairing your liquidity is also a fool’s game.

Fourth, recognize where we are. The Fed Funds rate is at zero and it could be there for a while. Earning over 1% on your money is still over 1% more than zero. And, it is important to keep your asset base growing. The same folks who were excited about online savings accounts earning 2.50% last year when Morgan Stanley or Bank of America were offering 1.50% should recognize that the same online savings accounts are still offering spreads just as worthwhile to pursue.

Fifth, think about earning AAdvantage miles through a Bask Bank account. If you believe that you are ever going to be traveling again, then this is a good time to open an account that pays you miles instead of interest. I wrote about Bask Bank several times here and here readers in the comment sections engaged in exercises of trying to determine the value before reaching the conclusion that the account was attractive when savings and CD alternatives were much higher. Now that those rates have come down and Bask Bank’s offer remains the same until June 30, the opportunity is even more attractive. $100,000 deposited for 1 year earns 100,000 miles. BestCashCow conservatively values these miles at 1.90 cents each, but I can still find redemptions in business class seats to Hawaii and Europe where the value is well over 6 cents a point. And, if you act before June 30, you will still be eligible for an additional 46,000 AAdvantage miles on the $100,000 balance over the next year in the form of a sign-up bonus, a feedback bonus and a balance bonus. An additional benefit is found in the fact that Bask Bank’s 1099 will only report the miles at 0.42 cents each.

Learn more about Bask Bank's AAdvantage Miles-earning account here.

Times are tough and may get tougher, but save on!