As I write, in July 2021, we are living in a strange time. We are facing extraordinary risks to our democracy in the US, risks to our health as COVID-19 variants appear, and risks to our environment as it becomes increasingly clear that the human race has delayed far too long to expect any meaningful investment to counteract climate change.

Yet, the US stock market sits at a valuation level where by any metric it is more richly valued than it has been at any point in our lifetimes (or at least in our memories). In addition, every asset imaginable, including worthless coins, property rights and going concerns without any economically viable business model can be easily bid (manipulated) to a level where it can no longer be justified by even the most ardent of CNBC cheerleaders.

In our COVID times, cash has become trash. The Federal Reserve began lowering the benchmark Fed funds on July 31, 2019 (before the virus), brought it to zero quickly when the virus hit, and seems to be willing to hold it there until 2023 while cravenly denying the existence of any inflation.

The challenge with the current scenario is that while it seems like a ridiculous time to be holding anything in cash, asset valuations are so high that they could fall dramatically at any moment as a result of things that are foreseeable (a change in Fed policy), things that are not foreseeable or nothing at all. And, we know from history that this can happen so quickly that very few will have a chance to save their assets.

Hence, I continue to say that it still seems like a good time to be protective and to keep some of your money in cash. But, true cash alternatives are very unattractive. Your broker at Morgan Stanley or Merrill Lynch is going to offer you 0.10% on brokered CD at the moment, which in addition to being a low rate is illiquid without a loss of principal.

A more attractive option – albeit still painful – is to put your money in an online savings account, as long as you stay within FDIC (or NCUA) limits. Multiple banks that are part of the most solid financial entities in the world are offering these accounts at 0.40% APY at the moment. And, the best thing about these accounts – particularly the accounts at American Express, Purepoint (MUFG) and CitizensAccess – is that you can transfer your cash back to a local bank account in order to take advantage of whatever opportunities or needs may arise in the near future. (Other well-known and solid banking entities such as Barclays or Capital One also offer 0.40% online savings accounts, but reviews on BestCashCow indicate that transfers may take a little longer and service may be a little worse). In fact, if you just take a few minutes to look at our list of the best online savings rates, you will find that there are also many banks that are willing to offer you more than 0.40% right now.

As you look out one or two years, you just do not want to find yourself in a position where you regretted not being a little more cautious. And, if you are so young that you’ve reached the end of this article without appreciating the level of uncertainty we face ahead, then you might want to seek out someone who lived through 2000-2001 or who lived through 2008-2009.

The Federal Reserve today continued with its current rate stance and its current bond buying program, but is now indicating that it will back away from these easy-money policies in 2023 as inflation surges and growth accelerates.

While rates are not going up immediately, this means that investors should begin to prepare for higher rates over the coming years.

Preparation for higher rates should involve continuing to seek out the best savings rates on cash. Rates on fixed income investments will begin to rise as we get closer to the Fed’s move, and certainly if the Fed is forced to advance its timeline due to continued inflation. As a result, Investors should be very cautious about fixed income investments and avoid CDs longer than one-year.

Even though today’s move likely guarantees that borrowing costs will remain low for products like mortgages and home equity for another year, if you are considering remortgaging or taking out home equity loans related to properties you currently own, this would be a good time to check rates.

The Wall Street Journal has an interesting article today which highlights how banks have become so completely awash in deposits that they are discouraging major companies from continuing to increase their cash deposits. It notes that CFOs and treasurers at companies, such as Verizon, ATT and Advanced Auto Parts, believe that the current economic circumstances require them to increase their allocation to cash, and that, in turn, is causing capital allocation problems for major banks.

The article is well worth a read, but it also raises the question of whether retail customers can expect to see any competition for their savings and CD dollars any time in the near future.

Given that total commercial deposits at US banks exceed $17.09 trillion according to the Federal Reserve, increasing by $411 billion over the last 2 months and by almost 50% over the last 3 years, and that the Federal Reserve seems intent on holding rates at zero for the coming two years, it seems unlikely that retail customers are going to see any competition among major banks for their deposits in the short term.

This is highlighted by the fact that the financial manager at ATT is quoted in the third paragraph of the article as saying that they really aren’t interested in optimizing their yield. So, if ATT is just trying to hold their cash, should you give up and do the same?

The answer is no. While the underlying economic circumstances are the same, as a retail depositor, you still have more avenues available to you to try to maximize your cash.

First, major online banks, such as Ally, Citizens Access, Synchrony, CIT, Purepoint and Marcus (Goldman Sachs) have invested tremendous amounts over the last several years in advancing their banks among retail consumers. So far, they have decided that there is a floor of about 0.40% APY below which they will not go for risk of eroding the retail investor goodwill and deposit basis that they have spent years building.

Compare the best online savings rates here.

Second, retail consumers have access to local banks and local credit unions that may not be able to even meet capital requirement rules required to service large corporate customers. Moreover, these banks are interested in retail customers that they can draw into other financial management and lending products and are therefore willing to remain competitive through the current environment.

Compare local bank savings rates near you here and compare local credit union savings rates near you here.

Certainly some depositors are going to be led to accept nothing or virtually nothing on their deposits, but for those who are willing to take the time to open new accounts within FDIC limits for banks and NCUA limits for credit unions, there continues to be incremental interest to be gained.