It has been 3 days since the Federal Reserve raised the Fed Funds target rate to a range of 2.25% to 2.50%.

Over the past year, with each raise, the major online banks have competed to be first to move their savings rate within the new range. Within the last three days, several online banks have raised their online savings rates consistent with the new Fed Funds range. As of this publication, there are nine online banks with savings or money market rates above 2.25% APY. Depending on where you live, you will probably also find savings and money market rates at local banks and local credit unions that are above 2.25% APY.

However, many of the most well recognized online banks have yet to raise their savings and money market rates. While Ally raised its No Penalty CD rate to 2.30% APY and Marcus had raised its to 2.25% APY a week ago, Synchrony Bank, Barclays Bank Delaware, American Express Bank and Purepoint (to name a few) have remained frozen and unresponsive to the new Fed Funds target.

In fact, the major online banks have also chosen not to raise their CD rates, leaving them at rates that do not reflect expectations of higher rates over the course of 2019.

It appears, therefore, that many well known online banks are placing a bet. They are hoping that you are so focused on your huge stock market losses this last week and a reckless leader who is unleashing chaos across the globe, that you will not notice that they are reaping savings by not passing on competitive rates to you. They are also hoping that you are preoccupied with Christmas and New Years.

But, in spite of it all, there is competition for your cash and you should be moving it, when appropriate, so that the rate you are earning lies with the new Fed Funds target rate.

The Federal Reserve, acting today in its final 2018 meeting, voted to raise the Fed Funds rate by 25 basis points. The Fed funds target rate is now 2.25% to 2.50%.

This hike represents the fourth hike of 2018, and since Jerome Powell became Chairman of the Federal Reserve. (In December 2017, the Fed Funds rate was raised to 1.25% to 1.50% in Janet Yellin’s final meeting as Fed Reserve Chair.)

We continue to slowly see a normalization of interest rates in an effort to curb liquidity as the economy has moved over the last nine years from a dramatic recession to fast expansion. The Fed’s continued hawkish actions are not appreciated by all, but they make sense. While the stock market has come down dramatically over the last few weeks, easy money is no longer required to extend the US expansion. Normalization is necessary to fight incipient inflation, to avoid a Japan scenario where interest rates get stuck at or near zero for generations, and to provide the Fed with the ability to lower rates later when and if necessary to counter a shock to the economic system.

The pace of future rate hikes is likely to be dramatically slower. Today's Federal Reserve consensus forecast guided to two more quarter-point hikes in 2019, and one hike in 2020. The long-term neutral target rate has been reduced from 3.00% to 2.80% (although a 2020 hike will bring the Fed a quarter point above neutral).

We think it is possible that the Fed could be forced by outside pressures to become more dovish more quickly. Chairman Powell indicated in November that he could pair back rate increases when he tried to appease Trump by saying that the Federal Reserve was already just below neutral. It is now also possible that a tremendously unstable President may try to remove Jay Powell and replace him with a more dovish Chairman.

So How Do you Play this Latest Fed Funds Move?

First, online savings rates are higher now than they were at the beginning of 2018. As a result, there is today much more of an incentive to get your cash out of banks paying virtually nothing than there was at the beginning of the year. If you still have cash in savings or money market accounts that is earning close to zero, this is a good time to move your assets to either an online bank on a local bank or credit union near you with a competitive interest rate.

Since the number of further rate increases and their pace is not particularly certain, one-year CDs are more compelling versus savings than they have been in a long time. At the beginning of 2018, the average premium in one-year CDs was about 45 basis points over savings, and that premium recently widened to 77 basis points (see the third graph in our rate analysis).

Rates are rising on longer term CDs but we see very little premium in the average 5-year CD rate over the average 1-year CD rate (see the third graph in our rate analysis). Therefore, we would strongly recommend CD purchasers lock into only a one-year CD and taking another look at longer-term CDs when it comes due in December 2019.

Finally, when the Federal Reserve raises the Fed funds rate, as it did today, you also often see an immediate move in the prime lending rate offered by most major banks. We expect that most banks will immediately raise their prime lending rate by 25 basis points which will have an equally immediate flow-through to credit card rates and auto loan rates. If you have been considering locking into a home equity loan or a new fixed rate mortgage, you have probably missed the ideal time, but you may want to consider doing so before rates go higher.

As of this morning, Robinhood is offering a 3% APY savings & checking rate on its website. The account is advertised as being completely without fees and providing access to 75,000 ATMs.

In an earlier article, we suggested that there was no need to rush into neobanks for their service. However, anybody who has followed the savings and money market space for the last decade knows that it has been impossible to obtain anything close to 3% APY on your liquid cash.

As of the date of this publication, the best nationally online savings rate stands at 2.50%. See all the best online savings rates here. You may, however, be able to obtain a better rate at a brick-and-mortar bank or a credit union near you.

In fact, even if you are willing to tie up your money for 12-months, you still cannot get 3% on a one-year Certificate of Deposit on a nationally-available online account, although 3% may be obtainable at your location from local banks and credit unions.

Let’s be very clear: Robinhood is not FDIC-insured.

Robinhood notes that it is insured by the SIPC. The SIPC is not just another 4-letter acronym with virtually identical protection (like perhaps the NCUA that covers credit unions). It is the Securities Investor Protection Corporation and the coverage is very different from FDIC insurance.

The SIPC says that it ensures cash in a brokerage account to $250,000 (and securities to $500,000). SIPC coverage is designed to protect the account should the brokerage fail and the assets not be present in the account of the other side of a failure. It often takes time for brokerage assets to be identified and sorted out in the event of a failure and it could be a lot of time. On the other hand, the FDIC steps in and restores bank accounts to their full value at another institution the following day (so you have no meaningful loss of liquidity and no sleepless nights as long as you stay within FDIC limits).

Another important difference between FDIC insurance and SIPC coverage is that the latter is significantly more limited. SIPC coverage attaches to you in each “separate capacity” which differs from “ownership class” at the FDIC. The terminology difference may seem trivial but it actually has severe implications because the SIPC insurance is much more limited. Here are two ways in which the difference is most evident:

First, a husband and wife opening a joint account at a bank are insured in that account up to $500,000. With a joint brokerage account, their combined cash is only protected to at most $250,000.

Second, your total securities are protected up to $500,000 by SIPC insurance across all brokerages. While retirement accounts are a separate capacity, if we were to experience a failure at several brokerages, you would be limiting your SIPC coverage at other institutions by having an account in your personal capacity at Robinhood.

You can learn more about FDIC insurance and the coverage it provides here.

Robinhood seems to be founded by millennials and it is aimed at millennials with moderate assets. However, if you aren’t a millennial or are one with assets in other places, you’ll likely be able to sleep better by seeking out the best online savings rate you can find at an FDIC-insured online bank. See those rates here.