July 2019 Savings and CD Update – Interest Rates Are Falling; How To Continue to Earn A Decent Return on Cash

We have experienced a dramatic fall in interest rates in the US and following the Fed’s most recent meeting in June, CD rates greater than 1-year have come in dramatically. Most recently one-year CD rates and even some online savings rates have begun to fall.

There are three different strategies that you can mix-and-match to continue to earn interest on cash against the backdrop of a likely 25 basis point cut by the Fed at the end of the month.

First, we continue to like No Penalty CDs. We wrote about the benefits of No Penalty CDs over savings rates here. In June, we highlighted the No Penalty CD products of Purepoint, Marcus and Ally. As of this writing, those products are all still be offered with the same rates and minimums. Purepoint continues to have the highest rate for these products at 2.50%, but Marcus has the lowest minimum deposit ($500). [Editor's Note: On the day of publication, Purepoint cut their 13-Month No Penalty CD rate to 2.00%. Depositors should look at the No Penalty CDs offered by Ally and Marcus before considering Purepoint.]

We list all No Penalty CDs and other special term CDs here.

Second, we think that it makes sense to consider locking up money that you will not need in 1-year CDs. Even if the Fed does not lower the Fed funds rate in July since Chinese trade relations may be improving, it is very unlikely that it will raise the rate more than once over the next 12 months. Therefore, we don’t see prevailing savings rates going over 2.70% before the end of June 2020; yet, you can still lock in that rate between now and then at several online banks. To mitigate the risks of rising rates or needing to access your cash, we suggest limiting your CDs to those banks with early withdrawal penalties of 3 months interest or less. As of this writing, there are at least 5 online banks with 3 months early withdrawal penalties that are still offering rates of 2.70% on 1-year CDs.

You can see the complete list of 1-year CDs here.

Third, you can ride this interest rate uncertainty out by staying in savings and money market accounts, but you should fully expect that your interest rate will fall if the Fed lowers the Fed funds rate at the end of the month. You might want to focus new deposits on those banks that are new entrants in the online market (as they will want to stay competitive as long as they are in asset accumulation mode) and those that are keeping their rates high prior to the Fed’s move.

We list all of the best online savings rates here, and you may also want to consider local savings rates and savings and money market offerings from credit unions.