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.
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.
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.
