We are still in the midst of an horrific pandemic but we have vaccines going in arms now and that is a good time to look at how and when you are going to travel when this pandemic ends and it becomes easier to do so.
I found Bask Bank very compelling when it was launched by Texas Capital Bank back then. It provided a chance to earn lots of American Airlines AAdvantage® miles instead of cash. Since I frequently have extracted 5 to 6 cents in value per mile when redeeming AAdvantage® miles for tickets to Hawaii or Europe, I advised folks to consider seriously stocking up on this AAdvantage currency with rates so low.
The comments to these two articles are full of analyses by readers comparing interest income with miles, both before and after considering tax consequences (Bask Bank will send you a 1099 that reports all miles earned at 0.42 cents per mile). While I found Bask Bank to be instantly compelling since I value AAdvantage® miles so highly and did not view a detailed pricing mechanism, these readers’ analyses showed that in many scenarios they were effectively purchasing AAdvantage® miles for under a cent a piece when compared to the prevailing interest rates at the time.
Since those articles were written, we went through a period where nobody was thinking about traveling or earning airline miles. But, as we come out of that period, it is clear that American is going to survive and AAdvantage® miles will again have value to those who want and need to travel by air.
At the same time, interest rates have come down dramatically and they aren’t about to rise any time soon. While the small promotions that Bask Bank offered earlier in the year are largely expired (you will still earn 1,000 AAdvantage® miles for a new account with over $5,000), Bask Bank is still offering 1 point per dollar on deposits annually. Since the best online savings rate is now 0.75% APY and most of the top online one-year CD rates are below that level (compare online CD rates here), those who crunch numbers will find that you can now effectively buy (or earn) AAdvantage® miles at well under 1 penny a point.
And, for anyone who travels or is familiar with the American AAdvantage® program, that is a no-brainer.
Federal Reserve Chairman Jerome Powell has ended 2020 with all sorts of dovish, benign language, holding monetary policy as easy as possible.
He isn’t forecasting any rate hikes before 2023, with only one Fed governor suggesting that rates will rise in 2022. The Fed continues to target inflation around 2.00% and will ultimately like to see the Fed funds rate around 2.50%. At the same time, the Fed remains committed to using its full range of tools until the pandemic ends. Since the prevailing view on Wall Street is that the pandemic will end and the Fed will taper its bond buying in 2021, the yield curve is widening following this Fed’s announcement.
The Fed’s policy is the one that helps financial managers and puts support beneath the US stock market. It isn’t the right policy for maintaining the purchasing power of the dollar. And, it is a policy that is unfortunate for an aging (and increasingly risk-adverse) population where interest does not come anywhere near the rates required to maintain real wealth.
Yet, it is the prevailing view that it is the right policy for an economy grappling with a virus, and it is becoming the unanimous view that President Biden and Treasury Secretary Janet Yellen are going to reappoint Jay Powell. So, it looks like cash is going to be trash for a quite while.
Rates on savings products and CD products are incredibly low and have been for several months now. These are the times when people may be apt to fall for scams and take unnecessary risks. Don’t do it.
I made this same warning in 2014 when rates were last this low. You can read the article I wrote then about outfits offering brokered CD rates that were well above prevailing rates here.
On BestCashCow, you can find and compare the best savings offered today by online banks, by local banks and by credit unions. There may be very slightly higher rates that are offered by “neobanks” (which I define as startups that offer some sort of payment or cash management solutions that a bank may not offer) and by “fintechs” (which may be offering other financial products (such as trading, investing or roboinvesting products). None of these products are FDIC insured. Their products are unproven and simply not worth the risks. I don’t even think they should be called savings accounts. I think they should be called savings account alternatives and I think that is generous.
I first suggested people not run into neobanks here. I’ve had discussions with so-called fintechs about their savings products and resolved not to list them on BestCashCow or its affiliates because these institutions are not offering the liquidity in their savings products that a savings product requires. and they themselves are not FDIC insured and they lack the transparency to give customers the comfort that they require even if their cash is actually to be held at one or more designated partner banks. I specifically suggested people not run into some of these here.
My concerns about these types of savings alternative accounts were realized in today’s news when the Federal Trade Commission took action against a company called Beam Financial. It seems that folks had put money in this neobank or fintech or whatever it is (in this case, it may not have been more than a mobile app) in order to earn 1% and then were unable to get their money back. Their three partners, including a bank, brought suit in order to find out who actually owned the money (meaning it may never have been FDIC insured since the money was not tied to a depositor’s name and social security number).
You can learn more about this here. It looks like most of the depositors interviewed had only put small amounts into their accounts and the entire amount at stake may not have been much more than $2.40 million. Yet, it is disconcerting to know that some similar organizations are out there actively soliciting new accounts up to $1 million.
Bottom line: Do not step out of FDIC coverage or even risk stepping out of FDIC coverage for a few extra basis points. Always stay in FDIC insured and NCUA insured institutions and maintain relationships with them without intermediaries. Learn more about FDIC and NCUA coverage and limits here.
