I have written about structured notes before on BestCashCow. I believe that they may represent a good way to generate income in a fairly low-risk way over time at rates well above the rates offered by savings and CDs. Or maybe not. Under any circumstance, they only work for a certain type of investor. It is easy to get drawn to high yielding instruments after yields of extraordinarily low savings and CD yields. Yet, these will be inappropriate for most people seeking more yield as they go out for 15-years and may be very illiquid for most of that time.

What I particularly like about these instruments is that they are generally geared to deliver large interest payments as the long end of interest rate curve rises, unlike bonds and municipal bonds, which will see a strong and pronounced losses of value in 2018 and 2019 and beyond if the Fed continues with its stated plan to raise interest rates.

A common structure in structured notes involves a 15-year period during which the notes pay interest tied to the spread between the 30-year and the 2-year Constant maturity swap rates (“CMS”). CMS is a rate at which bank’s trade with each other, and basically involves the difference between the stated maturity’s equivalent US Treasury rate and the 6-month US Treasury rate. The 2-year CMS rate is currently around 1.60% while the 30-year CMW rate is currently around 2.60%. The spread is currently at around 1%. (If you don’t have access to a Bloomberg, these rates can usually be found here).

If rates on the long end go up faster than the short end, the spread will widen. If they go down, it will contract or go negative. If they spread goes negative, the holder if these instruments foregoes interest. If the S&P falls by more than 70% from where it is on the pricing date, the holder also forego interest. With this note, you win if the stock market doesn’t completely crash from the date of issue and the long end of the yield curve goes up.

Over the last several years, this structure has outperformed savings and CDs, but hasn’t been a big winner since long rates haven’t meaningfully gone up. Since holders sometimes require liquidity, it has been possible to buy notes on the secondary markets at a significant discount to par.

This offering by GS Finance Corp. is guaranteed by The Goldman Sachs Group and follows this same structure generally. It pays a fixed rate of 6% in the first year, but unlike most other offerings it pays 6x the spread (most other offerings pay only 4x or 5x). It is also attractive as the maximum interest rate is capped at 12% (whereas most Morgan Stanley, JP Morgan and Citibank offerings in the past have been capped at 9% or 10%). If you buy these notes today, you are hoping that the higher multiple and higher cap will prevent them from trading at a significant discount to par should you require liquidity over the next 15 years.

There is no doubt, the Goldman product is interesting and Goldman is a great credit. But, anyone investing in these products needs to understand that a product of this length is going to involve real liquidity risk and the real risk of no interest payments for a lengthy period of time. There are other risk too, detailed in this article.

These notes way be worth a look, but I would continue to have a strong bias towards savings accounts and CDs. You’ll find the best savings rates here and the best CD rates here.

Editor’s Note: The product discussed above trades under CUSIP 40054LLP7 and ISIN US40054LLP75. It is offered principally through investment advisors. BestCashCow does not believe that the product is appropriate for most investors, and does not endorse it.

Online banks offer some of the highest savings and money market rates in the banking world but many individuals are still nervous or skeptical about sending their money over the Internet. Yet today, opening an online savings account or money market account can not only get you a significantly higher rate, but it can come with more convenience and control than a traditional account offers.

Higher Rates and More

The most often cited reason for opening an online savings account is that online banks can offer savings rates that are over 1% higher than those offline. Without the need to absorb the costs of branches and branch employees to support, they can operate more leanly, passing their savings on to their depositors. Even among online banks, there is a range of rates that reflects competing demands for deposit capital. Competition has become so keen that many major online banks offer their highest rates with minimal or no deposit requirements.

There are other very compelling reasons to move some of your money to an online-only bank. Principal among these are 24x7 access to your capital through a website or a mobile app and expanded customer service phone hours. In addition, some banks offer check writing and a debit card as part of their online account. Most however still find it most convenient to tie their online savings account or accounts to checking accounts at banks with large branch networks, holding only the minimum required at those banks and transferring capital back in as needed to cover expenses.

You can see all online savings account rates, balance requirements, and features on the here. In the reviews section of the table, users comment on their experience with a particular online bank, allowing you to ask questions and read about others experiences with account opening, customer service, transfers, and more.

Is Your Money Safe?

All of the online banks listed on BestCashCow are FDIC insured. While being FDIC insured is not a guarantee that a bank is necessarily financial sound, it indicates that the Federal Reserve guarantees your money up to $250,000 in each ownership category.

In addition, many of the highest paying online banks have been around for some time or are part of larger, better known parent organizations. Large, well known banks like Goldman Sachs Bank, Barclays Bank Delaware (one of the largest banks in the world), Emigrant Bank, Capital One, and TIAA CREF have rolled out online offerings with higher rates than their offline divisions.

Is it Convenient?

In general, with an online savings or money market account, you can access your money online all the time, and deposit and withdraw your money using electronic transfers. Some banks such as Ally now offer remote deposit though the mobile app. By connecting your online savings account to another account that you have at your main bank - usually a checking account - you can easily transfer money back and forth. An electronic transfer can take about 2-3 days to be complete, but at some banks, such as Goldman Sachs Bank, they are effected instantaneously. Banks often have a 5 to 10 day hold period during which money recently transferred electronically may not be withdrawn.

Customer Service

Almost all the online banks have phone numbers you can call if you have a problem. You can also send them contact them directly through their interface or by email.

Some Pitfalls

Some online banks have very high introductory rates for savings accounts. While the rate is guaranteed for a very period of time, it ordinarily is reduced to a lower rate shortly thereafter. Opening an online savings account at one of these banks can be viewed as being equivalent to opening a short term CD while having the money liquid. BestCashCow however recommends depositors avoid banks that engage in bait-and-switch tactics, and favor those online banks that have a history of remaining competitive and extending their best rates to their longest standing customers, as well as to their newest customers(Ally, Synchrony, Goldman Sachs).

Bottom Line

There are plenty of reasons to continue to do business with banks and credit unions with branch networks that are close to you. In fact, some of these banks offer savings and CD rates better than the most competitive rates online, so you should always check the rates in your area.

Often, however, the easiest way to gain an extra percentage point or more is to open an online savings account. They offer high rates, safety, and convenience to those willing to make the jump to cyberspace. When you consider the value of compounding even an extra one percent annually, your money can really add up over time (see the BestCashCow compound interest calculator here to calculate how much more you could make).

Do you plan to open an online savings account soon? If not tell us why by commenting below this article.

Last Wednesday, the Federal Reserve raised the Fed Funds rate from a quarter basis point to a target rate of 1 to 1.25%.

The move was widely expected, and gives hope to savers who have endured savings rates below zero for the almost a decade.

As I noted in my commentary the last time the Fed raised interest rates in March 2017, the impact on savings and CD rates banks are offering in not necessarily immediate. However, 5 days after the Federal Reserve’s move, we are seeing the leading savings rates and CD rates increase. BestCashCow’s tables show the best online savings rates are now as high as 1.30%. They also show the best online 1-year CD rates are pushing 1.50%, with the best 2-year rates at 1.80% and the best 3-year CD rates over 1.90%.

BestCashCow's local tables may show that savings rates and CD rates are offered in your home area that are higher than those that you find online.

Should you Lock into a Short Term CD now?

At this time last year, 1-year CD rates were as high as 1.35%. As those CDs become due, their holders have outperformed cash, and are in fact outperforming cash right up to maturity.

Inflation is contained. To boot, energy prices are falling due to Trump’s errant energy policy and disastrous climate policy. While the Federal Reserve is only predicting one more rate hike this year and 3 next year, the fall in the 10 year US Treasury rates early this month would seem to indicate that the market is certainly not predicting any dramatic rise in interest rates in the immediate or intermediate future. Therefore, there is little risk in a 1-year CD here, especially if you can find one that has only a 3-month early termination fee if you need the cash back sooner.

As it does briefly and semi-annually (each December and June), Ally Bank has begun offering its 11-month no penalty CD. This time the rate is 1.50% for those depositing $25,000 or more. Unless our tables show a better local savings rate or higher locally offered CD rates in your home market, this offer might be worth taking a look at.