As interest rates have come down dramatically, following the Fed’s emergency response to the virus, savings and money market rates have become very unappetizing. As of this writing, all major online banks have dropped their online rates to 0.80% APY, with some having gone to 0.60% APY.

The Federal Reserve and Chairman Powell do not plan to raise interest rates for a long time. The talk about possible negative interest rates and concern over a stock market bubble has folks (myself included) thinking that we may be the new Japan. And, if we are, interest rates will not be rising any time soon and it make sense to lock into some yield – any yield whatsoever – on cash that we cannot afford to risk in the market, real estate, bonds, commodities, etc. And, the obvious way to lock in yield is to put your money in a CD or time deposit.

Three months ago, I suggested in this article that depositors look at No Penalty CDs and one-year CDs as a place to hide. At the time, you could still lock into a 1-year CD at 1.35% APY. Now, you cannot (although in certain states, rates at local banks and credit unions may be close to that level - check here and here). You can still get 1.25% APY in a 5-year online CD and perhaps even higher in a bank near you or a credit union near you, but that involves locking your money up for 5 years!

We’re basically two months from an election now. The election brings the possibility of a new Federal Reserve Chairman with a different policy (and less subservient to a President who wanted interests rates at zero even before the pandemic). While there is a lot of talk about asset deflation, all inflation indicators (CPI-U, etc.) suggest that inflation is picking up. It is very possible that we could be in a very different interest rate environment as soon as six months from now.

I could be wrong, but I think it is a good time to just grin and bear it, and stay with online savings and money market accounts.

The Federal Reserve unanimously voted to leave interest rates unchanged when it concluded its two-day meeting today. The Fed funds rate remains at a target of zero to 0.25 percent. The Fed again signaled that it is prepared to keep providing the US economy with more support until it fully rebounds from the pandemic. Given that the virus is still raging in most of the country and that Fed Chairman Jay Powell has already taken unpredecented steps to increase liquiity, today's announcement was entirely anticipated by financial markets.

Powell's actions have been well telegraphed, but may still set the stage for online banks and local banks to lower their savings rates still further. You can compare online savings rates here and local savings rates here. With rates still trending towards zero, it could still be a good time to put money that you do not need immediately in a short-term CD, and you can check one-year CD rates here.

Mortgage rates may have fallen about as far as they possibly can and those considering remortgaging should have a look at mortgage rates here. Likewise, it could be a good time to take a look at taking out a home equity loan or line or credit.

Finally, a thought from us: If Eleanor Roosevelt's statue can wear a mask, so can you.

We’ve seen an incredible fall in interest rates over the last 12 months.

Bowing to political pressure, Fed Chair Jerome Powell began cutting interest rates on August 1, 2019 from a target rate of 2.25% to 2.50% and continued cutting rates by 25 basis points two more times in 2019 as a result of Presidential harassment.

At the beginning of 2020, the Fed funds target rate stood at 1.50% to 1.75%. Then, when the virus hit US shores, the Fed quickly moved to a zero to 0.25% Fed funds target in order to provide stimulus to the market.

In the months that followed, savings rates and short-term CD rates have tumbled. They may actually have further to fall. In fact, many leading online banks are offering CD rates well below their savings rates, providing a clear signal that they intend to bring savings rates down still further.

I am still getting a lot of emails from readers like the following: “I am in my 60s and I cannot stomach the market. I’ve taken $2 million out of the market and because I cannot find an online bank offering more than 1%, I’ve opted just to keep in at Morgan Stanley where I am getting 0.10%”.

Here is why this strategy is wrong.

First, if you look at the value of compounding, it is important that your cash always be earning as much as it can make. I think it is worth the effort to get an extra $18,000 in interest over the next year, even if you are in a higher tax bracket by locking into 1-year CDs that only pay 1% as long as you don’t need the cash. And, of course, if you do not need the cash until years out, earning 1% now looks even better over time. BestCashCow’s compounding interest calculator can help you further understand the importance of earning as much on your cash as you can over time.

Second, we have inflation in this country, although the virus may ultimately lead to price deflation. One goal with cash in savings accounts and short-term CDs is to maintain your purchasing power. Just this morning, the Consumer Price Index for all Urban Consumers (CPI-U) data recorded a 0.6% increase in food prices from June 2019 to June 2020. For people like the reader who wrote me above, an extra $18,000 a year in income, even if it is pretax income, will help to maintain purchasing power parity for their $2 million base in retirement.

Compare online savings rates here.

See the best online one-year CD rates here.