August 2018 Outlook: Savings Rates Increasing and Poised to Move Higher

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.

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.