The Federal Reserve lowered the Fed Funds target to 1.50% to 1.75% on October 31, marking its third rate cut this year and causing many of the most recognized online banks to lower their savings’ offers below 2%.

The paradox is that the points where it is hard to get excited about cash are those where most banks are lowering their rates and where it becomes more important to be sure that you are maximizing your returns on cash.

And, the reality is that you can still get over 2% APY in online savings and money market accounts from online banks. As of today, BestCashCow shows over 30 online savings and money market accounts that deliver over 2%. Of course, all of these banks are safe for deposits up to FDIC limits, but those who insist of depositing assets only with well-recognized names will find that a solid list includes names such as HSBC, Salem Five and Live Oak. And, of course, you may still find high savings and money market rates at banks and credit unions near you.

Check local savings rates here.

Check local credit union savings rates here.

We’ve written about No Penalty CDs before as a way to lock in a higher rate than savings accounts offer, without risk. While rates of these instruments have fallen, those who have savings accounts at Marcus, Purepoint, Ally or CIT should still consider moving their money into these products for a slight boost and to protect against the possibility that Trump is not removed from office and rates continue to fall in 2020. See No penalty CD rates here.

One-year CDs continue to offer a premium over savings accounts for those who do not anticipate needing access to their capital. Sallie Mae and Live Oak Bank are still offering 2.35% and 2.30% APY, respectively, and these accounts have early withdrawal penalties of only three months’ interest. CIBC Bank is offering 2.25% with an early withdrawal penalty of one month of interest. Again, you may find better rates locally.

Check local CD rates here.

Check local credit union CD rates here.

Finally, it is worth noting that we still see online 2-year CD rates as high as 2.60% and 5-year CD rates as high as 3.00%, and these products could be interesting for those who think low rates are here for some time and do not require access to their capital.

Have a great month and Happy Thanksgiving!

The Federal Reserve moved to lower the Fed Funds target rate today by 25 basis points to a range of 1.50% to 1.75%.

This move marks the third rate cut this year.

The Federal Reserve has now "reversed" three of its four hikes from 2019. This latest move was widely expected, and many banks have already lowered yields on savings accounts and CDs. Borrowings costs - such as those on new home equity loans and variable home equity lines of credit and on auto loans - will edge lower.

The Federal Reserve claims to be making this cut in order to respond to business developments and a slowdown in exports. Inflation remains below the Fed's 2% target, allowing the target to be lowered without jeopardizing price stability.

In the Fed’s language, it now say that the Federal Reserve will monitor incoming information as it assesses the appropriate path for the Fed funds rate going forward. This change in language could be taken to indicate that these three rate cuts have been a typical mid-cycle adjustment that has now reached its end.

Clearly Jerome Powell and his colleagues have been motivated to make this mid-course correction to appease a President trying to help his real estate buddies and to proactively address a rate curve inversion. Barring a dramatic and pronounced turn towards a recession, the Fed’s next move should come in 2020 and be to increase rates in order to normalize the cost of capital.

This time last year, everyone was getting very excited about savings rates moving well above 2%, about 1-year CDs at 2.85% and above, and 5-year CDs at 3.50%. Those with cash were finally finding risk-free opportunities for their savings that matched the dividend yields that they could get from stock holdings in major industrial companies.

My, how times have switched back again quickly!

In short order, savings rates have been falling as the Fed has now cut rates twice this year. While the Federal Funds rate is now at a target 1.75% to 2.00%, some savings rates are still as high as 2.40%. But, estimates are for as many as two more rate cuts this year as the economy continues to slow and impeachment becomes heated. 2-year US Treasuries are now yielding below 1.40%. If are still excited about savings rates, don’t get too excited because if the Federal Reserve does anything like what economists and market observers are predicting, they could go much lower in the months ahead.

In this environment, if there is anything to get excited about it is still CD rates. BestCashCow is still showing several online banks offering 1-year CDs at 2.50%, with 2-year and 3-year CDs as high as 2.60%, and 5-year CDs as high as 3.00%. You may even find higher rates at banks and credit unions.

We’d be careful not to put too much in long-term CDs. However, as 2020 is going to present a rather uncertain political and economic environment, locking in an interest rate for the next year on money that you know you won’t need makes sense.