Unlike manufacturers, banks don’t make things. Unlike retailers, banks don’t sell things. Banks make money in three ways - the fees they charge for services, the interest they charge on the loans they make, and the income they generate from investments. They fund the loans and investments from the deposits they gather from people like you and me - or from loans, bonds and equity investments in the bank itself. In return for these funds, depositors get interest paid on their savings, lenders are paid principal and interest, bondholders get income and stockholders get dividends - as well as equity appreciation.

Enter the neo-banks. These financial services firms look to lure consumers away from the large incumbent institutions like Chase and Wells Fargo. They offer free-checking and mobile apps to manage your account. These challenger banks, such as Chime, Simple and Moven, offer a wide variety of technology tools to help manage your financial life - particularly your spending. They are driven, due to the ever-increasing amount of time we spend on our mobile devices, to find ways to get consumers to interact with their financial services app and collect data on that usage.

These companies are very good at technology. However, neo-banks aren’t, by their own admission, banks.

• “We’re not a bank, we’re a technology company that provides online banking services, and partners with an FDIC-insured bank, BBVA Compass.” - from Simple’s website.
• “That means we don’t profit off of you. We profit with you: every time you use your Chime debit card, we earn a small amount from Visa (paid by the merchant).” - from Chime’s website
• “Moven is the world’s first real-time mobile money tool. Moven is a financial service provider. We partner with CBW Bank, along with other vendors, to provide digital banking services.” - from Moven’s website

BestCashCow helps savers make better decisions in their financial lives by helping them find the best savings rates at banks across the country. Though Simple has offered special rates that compete with the incumbents, at this point in time, most neo-banks are not in the position to offer competitive rates or the range of banking services desired by the majority of consumers.

Your banking decision should be based on a number of factors - customer service, access, convenience, financial stability and, of course, an offer of competitive interest rates. Though these new mobile players succeed at delivering convenience and access through technology, the reality is their size, and the fact that they are not banks, limits their offerings and calls into question their long-term financial stability.

You’ll undoubtedly hear more about neo-banks, as the Treasury’s Office of the Comptroller of the Currency (the “OCC”) continues to explore special purpose national bank charters for fintech companies. The future may bring opportunities to get access to new innovations in bank technology. But, for now, if you’re unhappy with your current bank, you probably will be better off finding one of the incumbents that is offering a better rate, as well as better technology and service, than you’re getting now.

Savings and CD rates continued to firm in November. And, while much was made in the last few days concerning Fed Chairman Jay Powell’s unprecedented equivocation to presidential harassment, the Fed will likely raise the Fed Funds rate to 2.25% to 2.50% in December. Here are 5 savings and CD accounts that recenrly raised their rates:

1. MySavingsDirect – 2.35% Savings Rate, No Minimum Balance

MySavingsDirect is a division of Emigrant Bank, a large New York-based bank. While we have cautioned in our newsletter last month (hyperlink) that Emigrant has a customer-unfriendly history of locking rates down in one subsidiary and becoming competitive in another, we also note that for the time being they continue to be competitive with this brand, having raised the rate 10 basis points in mid-November. Customer reviews indicate that while MySavingsDirect accounts are easy to find and easy to open, ACH transfers from some institutions, including Morgan Stanley and Merrill Lynch, are not possible.

2. CIT Bank Savings Builder – 2.25%, Requires $25,000 Balance or a $100 minimum plus addition of $100 a month

CIT Bank is not a newcomer to the online savings game. While they have not been consistently competitive with their online savings rates, their recent actions indicate a strong initiative to keep their rates above all other well-recognized names. In November, they raised the rate on the savings builder account by 10 basis points to 2.25%. 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). We think CIT is likely to remain competitive and named it one of our best bets for 2019 (hyperlnk).

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

3. Ally Bank – 2.25% No Penalty CD. Requires $25,000.

We have been a fan of Ally’s No Penalty CD’s for some time and have encouraged those depositors with over $25,000 to take a look in prior monthly updates.

We also recently wrote about No Penalty CDs and the opportunity that they present here (https://www.bestcashcow.com/no-penalty-cds-may-offer-an-easy-way-to-boost-to-your-savings-rates.html).

Ally raised the rate on this No Penalty product twice in November. Since this product can be terminated easily, those invested in it can quickly move to the higher rate each time it is raised.

See and compare all of the best special CD rates here.

We have recommended caution around long-term CDs for some time. However, if the Federal Reserve is going to be tempering its moves in 2019, short term CDs will become interesting.

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

Live Oak Bank is a small North Carolina bank that entered the online banking marketplace earlier in 2018. They have not been a consistent competitive player – they have not raised their online savings rate as fast as many competitors, and they have from time to time lowered CD rates. However, at the time of this publication, their 1-year CD rate stands at 2.85% - a rate that is not only well above the more recognized online banks, but that we think has very little risk.

Check out the best 1-year CD rates here.

5. Virtualbank – 3.06 2-Year CD, $10,000 Minimum

We’d be a little bit more cautious about 2-year CDs. VirtualBank does not have uniformly good customer reviews on BestCashCow, but they recently raised their 2-year CD rate to 3.06% which now stands as the top 2-year rate on BestCashCow’s 2-Year online CD rate table. Depending on where you live, you may find still higher 2-year rates at banks and credit unions near you. We don’t believe that savings and CD rates are going down anytime soon, but if believe otherwise, this one might be worth a look.

Have a great month and Happy Holidays.

If you turn on the TV, open the Sunday newspaper, or log on to anything, you’ll see that while the holiday season is about family and friends, it is also about savings money and getting the best deals (when spending money).

What is being overlooked is that you can also get great deals now on savings money. For the first time in a decade, online banks, brick-and-mortar banks, and credit unions are all competing hard for your cold, hard cash.

Over the last couple of months, we see not just promotional rates but a campaign of attractive incentives competing for your hard-earned deposit dollars. Ally recently offered depositors bringing new cash a 1% bonus up to $1,000 (that promotion has now ended).

The Federal Reserve will have raised interest rates four times in 2018, and may raise them two or three more times in 2019. As banks (and credit unions) review their 2019 deposit goals, the “sales” are vigorous and ongoing and likely to continue.

The sales are in savings rates. You can find them on BestCashCow’s online savings page. Be sure to check rates at local banks and local credit unions as well. You’ll find that many smaller and less well-known institutions are also running sales too.

Sales are also in CD rates (where some 1-year rates are now pushing 3%). The especially pronounced sales in long-term CD rates, are especially impressive, where many local banks are offering 5-year CD rates that look and feel astronomical compared with what the public has been conditioned to seeing over the last decade. Be sure also to check BestCashCow’s list of special CDs. (BestCashCow continues to recommend extreme caution signing up CDs longer than one-year).

Sales are real today. The special deals on interest bearing accounts and deposit products can generate 5 times, 10 times, and, in a few cases, 20 times the national average rates. With rates as amazing as those highlighted on BestCashCow, you need to ask yourself why one would continue to let Chase, Citibank, Wells Fargo, Bank of America and others take your money for nothing now?