The Federal Reserve voted unanimously today to leave the Fed Funds rate unchanged at 1.50% to 1.75%. This move was widely expected after Chairman Jerome Powell and other Fed governors signaled that they were comfortable with where borrowing costs were after three Fed funds rate cuts this year.

In its statement, the Federal Reserve removed its earlier guidance indicating that it would increase rates once in 2020, and noted that it now does not anticipate needing to raise rates again until 2021.

Thus, loan products that are tied to interest rates, e.g., credit cards, auto loans, personal loans, and home equity lines of credit (HELOC), are now much lower than they were at the beginning of 2019 when the Fed funds rate peaked at 2.25% to 2.50%. While, those seeking new mortgages and home equity loans could act now to take advantage of lower rates, the Fed also indicated that there is no hurry as current rates will most likely remain unchanged for much or all of next year.

You can check mortgage and home equity loan rates here.

Likewise, savings rates aren’t likely to go up anytime soon, but they also aren’t likely to fall much further either. Those with excess cash reserves can still take advantage of short-term CD rates that offer a nice, but not necessarily great, premium over savings rates in consideration of their loss of liquidity.

Check local savings and CD rates here.

I began BestCashCow’s November newsletter by saying that it was hard to get excited about cash. It is still hard to get excited about cash with the Fed Funds target remaining at a range of 1.50% to 1.75%. But, in the last month, the stock market has spiked higher to unsustainable levels, impeachment has begun, and the President has become completely unbound. It bears stating the obvious again: cash is safe as long as you stay within FDIC or NCUA limits.

And, you can still get over 2% APY in online savings and money market accounts from online banks. And, of course, you may also find high savings and money market rates at banks and credit unions near you. Check local bank savings rates here. Check local credit union savings rates here.

As I stated in November, rates on No Penalty CDs no longer offer a premium over savings rates. However, you should consider these offerings as protection against savings rates that could fall still further in 2020. See No penalty CD rates here.

CD rates have, by and large, come in much too far and much too fast over the last month. You can still get online one-year CD rates at 2.25% APY and you may be able to find local rates that are still higher.

Check local bank-offered CD rates here.

Check local credit union-offered CD rates here.

However, we’d be very careful about going out further than 1-year. That having been said, if you must lock up your money for a longer period, there is no reason to get less than 2.36% APY on an 18-month CD, 2.50% on a 2-year CD or 2.80% on a 5-year CD.

Have a great month. Happy Hannukah and Merry Christmas!

Editor's Note: This article was originally written in December 2019 when Bask Bank had a soft launch of its new American AAdvantage product. In January 2020 after Bask Bank released the full details of the product, the author realized that the Bask product is extremely compelling and updated this article to reflect that.

Several years ago, when interest rates were below 1%, many people opted to earn American Airlines AAdvantage miles instead of interest through a savings account program offered by BankDirect, a subsidiary of Texas Capital Bank. I had recommended that people close their American Advantage miles – earning savings accounts at BankDirect when BankDirect substantially reduced the value of the program in 2013.

In November 2019, several readers wrote to BestCashCow, perhaps aware that we had recommended the BankDirect program in 2013 and years prior. These readers were upset by a letter that they received from BankDirect informing them that their American Airlines mileage accounts would be sending 1099-INT forms from 2020 onwards to the IRS to report on imputed value of the miles awarded to them. I honestly believed that these readers were being silly to think that they could expect to get anything of value without a 1099-INT. I learned that BankDirect and Texas Capital Bank will be reporting AAdvantage miles at a 42 basis point value or 42/100s of a cent.

While investigating the 1099 matter, I also learned that Texas Capital Bank, BankDirect’s parent bank, was intending to offer a new AAdvantage program at Bask Bank, a new subsidiary, which would be akin to the pre-2013 program offered by BankDirect that we had once recommended.

The new Bask Bank savings account is instantly recognizable as being similar to the earlier BankDirect savings offer. Bask’s offer is geared to deliver 1 AAdvantage mile for every dollar held on deposit over the course of a year. If your account has an average balance of $100,000, you will earn 100,000 AAdvantage miles over the course of the year in the form of 8,333 miles a month. Unlike the earlier BankDirect program, Bask Bank has no account service fees.

When the details of the new Bask Bank offer were finally revealed in January 2020, it became clear that bonuses offered by Bask make it substantially more attractive. In addition to offering 1,000 AAdvantage miles for funding an account, Bask is offering an additional 5,000 miles for maintaining a $1,000 balance for one month. But, it is the additional offers that allow things to really add up. $25,000 held on deposit for one year earns a 10,000 mile bonus, $50,000 earns a 20,000 mile bonus and $100,000 earns a 40,000 mile bonus. As a result of the bonuses, the same $100,000 maintained at Bask Bank will earn 146,000 AAdvantage miles over the course of a year ($50,000 will earn 76,000 miles). You will need to maintain your balance above these levels.

BestCashCow shows that one-year online CDs are still available at 2.25% and many 1-year CDs offers by local banks and local credit unions in some markets are above that level. Savings rates are now much lower than 2%.

For purposes of this example, let’s take a look at the value of the 146,000 AAdvantage miles that $100,000 will earn. In BestCashCow's travel rewards credit card section, we routinely see that it is easy to find redemption values for American Airlines miles that have a value well over 1.80 cents per mile. Therefore, as a base case, we believe that you are getting at least $2,628 in value in the 146,000 miles. That is above the value you will get from depositing the same $100,000 in a savings or CD account over the next year. (And, by the way, the reported tax liability of these 146,000 miles will only be $613.20).

There are circumstances where these AAdvantage miles will have much more value. For example, I have redeemed American Airlines miles for expensive long haul business class tickets on American to Hawaii or to Europe on British Airways, Iberia or Finnair where I see values well over 4 cents per mile. (Qantas, Qatar, Cathay Pacific are also American Airlines partners where valuable redemptions can be found). Even if you don’t choose to redeem American Airlines miles for lavish trips abroad, the miles make sense to hold as an “alternative” currency as they can also be redeemed last-minute (and otherwise very expensive) tickets for work or family needs.

There are some risks to the Bask Bank account. The first one is that interest rates go to zero and Bask Bank cannot maintain the current payout rate, but you will bear the risk of falling rates in a savings account. The second risk is that AAdvantage miles become devalued, and I believe that is a risk worth taking as American Airlines has a track record of decades of protecting the value of their loyalty program since it has real value to them as a going concern.

Ordinarily, I’ll always recommend taking interest in the form of cash over some other instrument. But, in this case, I think it is silliness to be dismissive of the Bask Bank offer without looking at it carefully and how it might work for you. In fact, I already opened an account, even though I already have over 1 million American AAdvantage miles.