I was recently contacted by a journalist from a very well respected and widely circulated financial publication. She wanted my opinion of something called CNote, having already spoken with others (inside and outside the financial field) who were gushing over this product and company that had just won an award at South By Southwest in Austin.

I had not been familiar with CNote. I researched it. What I found was troubling, to say the least.

When I cofounded BestCashCow several years ago, the object of the site was to provide the largest and most comprehensive database of bank savings and CD rates in order to help people save and earn more without taking on additional risk. That remains the mission of the site today.

Alarm bells go off when I see people comparing anything to a traditional savings or CD product in order to induce people to put money that they cannot afford to risk into a product that bears none of the characteristics of a savings bank product. In the post-financial crisis era with increased consumer financial protection from the CFPB, selling a financial product that has completely different characteristics from a savings or a CD product (no liquidity parachute, no change in rates) and calling it a savings or CD product is highly troubling.

CNote is neither a savings product or a CD product. It is entirely illiquid – you can only recover 10% of your principal each quarter. This is a loan investment product with significant risk compared to a savings product from a bank. Unlike a savings or CD product, money you deposit with CNote is not insured by the FDIC, NCUA or anyone else.

CNote is now offering 2.75%. With online savings rates at or around that level and short-term CD rates much higher, the current yield that CNote is offering is quite simply much too low to justify the risk.

CNote presumably is legal under Tier 2 of Regulation A of the Securities Act of 1933 (as amended in 2015). But it is a loan investment product and bears the risk of a loan, not the risk of a savings product or a CD product. I suspect you may see regulators (the SEC and Treasury Department / Office of the Comptroller of the Currency) weigh in on the use of the terms “checking and savings” and “CDs” with the whole range of products now being promoted by the uninsured neobanks and Silicon Valley-backed outfits such as CNote. However, in the meantime it falls to you (the consumer) to product yourself by depositing money you cannot afford to risk only in products from FDIC-insured banks and NCUA-insured credit unions.

The thing that concerns me most about CNote and some of the Neobanks (such as Aspiration) is their effort to seduce consumers with their argument that they are “investing socially”. Implicit in this argument is the inference that banks and credit unions are not investing in things that are in the public good. In fact, the desire to do good is a powerful influence in FDIC insured institutions. Putting your money in local banks and credit unions that lend directly in your community is a great and perfectly safe way to keep your hard earned money working in your community (or some other community). (In fact, BestCashCow can help you to research credit unions and community banks that have goals and objectives that align with your social investing objectives).

If you cannot find a bank or credit union that meets your goals or want specifically to earn a higher rate of return by investing in, say, women-owned ventures or electric school buses, you can find social investing-oriented funds that offer rewards that are more consistent with the risk level.

You can learn more about CNote in this article in Forbes where I am quoted.

Bottom line: Steer yourself far away from CNote and products like it.

The Federal Reserve acted unanimously today to hold the Fed Funds target rate at 2.25% to 2.50%. Whereas the Fed had previously guided to two raises in 2019, it now indicates that there will be zero. Fed Chair Jerome Powell remains true to his commitment to bow to Presidential harassment.

The Fed is now guiding towards a signal rate increase in 2020. Its so-called neutral rate remains at 2.80% so we’d need to see another rate increase in 2021 to get there, as Powell has committed to doing.

The Fed’s “lower-for-longer” policy is not good for savers. It also isn’t good news for an economy that needs to have a normalized yield structure in order to address incipient inflation, and for a Fed that needs to have the ability to be responsive to the next downturn. And, it doesn’t seem to be good for banks either as the interest rate curve is very compressed, with the 10-year trading down to at 2.55% in the immediate aftermath of the announcement.

In the past, I have suggested that the depositors should be cautious locking into CDs against a Fed that is raising rates. Today’s developments, however, make CDs substantially more attractive for money that you are certain that you will not need until maturity. One-year online CDs at or above 2.85% would seem to be particularly attractive. You may even find higher one-year rates at local banks and local credit unions.

We are pulling through the winter, and savings and CD rates are continuing to firm, but are not moving dramatically higher as the Fed now seems intent to hold the Fed Funds rate at 2.25% to 2.50% until later in the year.

Here are 5 products that we find particularly compelling:

1. CIT Bank Savings Builder – 2.45%, Requires $25,000 Balance or $100 plus an additional deposit of $100 a month

CIT Bank’s reviews are largely favorable and their rate is very attractive. BestCashCow has named CIT as one of our best bets for 2019 so we think it will remain competitive. There are two ways to qualify for the savings builder account – either to maintain a $25,000 balance or to open the account with $100 and deposit at least $100 during each monthly measurement period (between the 4^th day of each month until the 4^th day of the following month).

2. CIBC Bank – 2.39% Savings Rate, No Minimum Balance

CIBC is one of Canada’s largest banks and launched its US online bank in late 2018. Their 2.39% savings rate is aggressive, and they have been among the first to raise their rates when the Federal Reserve raised the Fed Funds to its current level in December. To boot, the bank’s online savings account has no minimum balance.

3. My Savings Direct – 2.40% Savings Rate, $1 Minimum Balance

My Savings Direct is owned by Emigrant Bank. An account here bears certain risks and disadvantages that are well known to anyone who has followed the online savings space and Emigrant’s strategy. We highlighted these in our February newsletter. But, until and unless these risks materialize, the rate is attractive at 2.40%.

See and compare all of the best online savings rates here.

4. Purepoint – 2.60% 13-Month No Penalty CD, $10,000 Minimum

We have been hesitant to recommend CDs with rates rising, but we have also spoken very highly of the benefits of No Penalty CDs. With that in mind, Purepoint’s 2.60% No Penalty CD, introduced earlier this week, is startlingly attractive. It represents a 15 basis point premium on the best savings accounts (a 25 basis point premium on Purepoint’s savings account) and does not have the liquidity risk of CDs. We think this product is a very attractive alternative to a savings account at the moment.

5. Live Oak Bank – 2.85% 1-Year CD, $2,500 Minimum

Many are looking to short-term CDs to pick up yield and Live Oak’s 1-Year CD is one of the highest yielding and safest ways that we see to do it. The penalty for early withdrawal is only 3 months' interest and the minimum balance is only $2,500.

Check out the best 1-year CD rates here and see long-term CD rates here and special rate CDs here.

Have a great month.