The FDIC has implemented new coverage rules that take effect today and only affect trusts accounts that have over $250,000 deposited at a single bank.
FDIC rules had previously permitted a single trust account (such as a payable on death account, revocable trust or irrevocable trust) to have virtually infinite number of beneficiaries, with each beneficiary treated as separately insured and covered to $250,000.
While the new rules do not limited the number of beneficiaries in a trust account, the total aggregate coverage of the trust account, regardless of whether the money is allocated to savings or CDs, is now limited to $1.25 million.
At the Fed’s March 2024 meeting Jerome Powell reaffirmed that the Fed is not cutting interest rates until it has further information and continued to guide towards three quarter-point cuts in the Fed Funds rate before the end of 2024. In the days that followed, the Treasury curve has contracted with interest rates on the 6-month coming in by about 8 basis points and on the 2-year by as much as 18 basis points.
But, overnight rates have remained the same and will be the same until the Fed actually moves (which may or may not come at the conclusion of its May or June meetings).
While it is perfectly logical that some banks would be cutting their CD offerings (and will continue to cut their CD offerings), it is unfortunate that some banks have already cut their savings rates. We count Ally, Discover and Milli among those that recently lowered their savings rates, and some online banks like Valley Direct and ConnectOne lowered their savings rates earlier in the year.
If you are in a bank that is lowering their savings or money marke rates already, it could be a good time to consider moving your cash to a one that not as eager to lower rates. BestCashCow's savings tables now display the last rate change and the change history. Using this table will enable you to see which rates are most sticky.
Alternatively, it may make sense to lock in a high CD rate now.
The Federal Reserve ended its March meeting leaving interest rates at their current target. The members unanimously indicated that they anticipate three quarter-point rate cuts before the end of 2024. Given that January and February inflation data was bumpy, Chairman Jerome Powell was non-committal on a timeline for the first cut. He said that the Fed will remain data-dependent and will not make any rate changes before its May or its June meeting. He also indicated that if inflation were to pick up dramatically, the Fed could still raise rates, although he tempered that statement by saying that he sees no indication at the moment that such action will be necessary.
What is clear is that the Fed is completely beholden to its dual mandate (price stability and maximum employment) and wants to see clear indications that inflation is heading decisively towards its 2% target before it begins to reign in interest rates.
I personally am in the camp that would be betting that the Fed will not move in May. There remains a possibility that developments in the Middle East and/or Russia could cause a global spike in energy costs again and that would factor right through to inflation. Even if the focus is not on the risk of an oil price spike, the Fed needs to get 3 months or so past the recent inflation data until it begins to cut. And, that would put the first rate cut in the June meeting in the best-case scenario.
Interestingly, Chair Powell was asked about criticism that he has received from Republican lawmakers that high interest rates are burdening the American consumer, and about a letter that he has received from Senators Whitehouse and Warren that high rates are grinding renewable energy investment to a halt. His response was that he is sympathetic to those concerns, but that the Fed is charged by the Senate to pursue its dual mandate.
Those of us who invest in the renewable energy sector are very troubled by the slow pace of investment and it is clear that large project finance transactions cannot achieve the necessary internal rates of return (IRRs) when discounted by current rates. Unfortunately, Powell's answer to this question was correct and the Fed cannot be guided by the climate crisis while at the same time focusing on its dual mandate.
