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.
There is an excellent letter to the Editor in the New York Times by a citizen decrying the unending and ever more dangerous behavior of Donald Trump, and especially his reckless disregard for the country’s security and stability. In it, the writer correctly calls out the Republicans in Congress who remain silent and in hiding, caring far more about their careers than the country’s welfare.
The Republicans in Congress are, indeed, out there for themselves. They have made that abundantly clear – all of them. The country has never, in recent memory, seen anything as pathetic and as blind to the huge crisis the country is facing. The United States is at the brink, and that is neither an alarmist statement nor an exaggeration in any way. It is fact.
But, there is another huge segment of the United States turning a blind eye on reality – on all that the President is doing to damage the country. And that is the stock market, more specifically the investment community. Ever since President Trump assumed power, stock market indices have consistently rallied beyond even the most optimistic expectations. Very much like the Republicans in Congress, investors are focusing exclusively on their self interests, ignoring the many flashing red lights of the country’s impending crisis. Over and over again since the election, market behavior has become totally unplugged from reality. Unlike past behavior where markets have consistently (like clockwork) adjusted to external realities, today’s American markets have lost their internal barometers and have turned amazingly blind eyes to the obvious synergy between major political crises and economic well-being. So instead, one watches the country slide into an abyss from which it may not be able to pull out of, while at the same time markets, day after day, turn a blind eye to what is truly happening. It seems that companies and markets are so relieved that Democrats are no longer in office that they haven’t stopped to realize that – truly – Republicans aren’t either – and that the country is at the brink and no one with a responsible national purview is in charge. The result of all this is both obvious and catastrophic.
The article highlights, actually celebrates, the fact that Bank of America in 2016 paid only $617 million for $796 billion in US interest-bearing deposits. In other words, Bank of America paid 0.08% in interest to its deposit customers in 2016. It also points out that customers of Bank of America could have made almost twice as much in interest had they moved their money to Chase, and many multiples had they held their money in Goldman in 2016.
In its effort to try to explain why so much money is still held in low or no yielding deposit accounts, the WSJ authors proceed to highlight the branch network and technology as the reasons why young people choose to keep their money in these accounts. In particular, the article refers to the experience of a woman in her mid-30s who finds Chase’s mobile technology and ATM network to be her reason for sticking with them.
Chase’s mobile technology is in fact outstanding (Bank of America’s is not), but so to are the mobile apps of some online banks (Ally, for one, has an excellent mobile app). More importantly, if you require access to a mobile app or a branch network or great international wire transfer functionality, you can get all of these services through Chase or Citibank or Bank of America or Wells Fargo without fees by maintaining an account with balances of only $15,000.
Your cash above that amount should always be in a higher earning interest accounts. Higher earning savings accounts can be online only. Smaller, lesser known banks and credit unions in your area may also pay higher rates. If you do not need the money right away, you should also consider CDs.
Towards the end of the article, the authors seem to determine that part of the reason that people don’t move to higher yielding accounts is that they really don’t have that much money to move. However, BestCashCow’s Savings and CD Calculator demonstrates how even a small amount of money can compound significantly more quickly over a relatively short period of time when moved from a low yielding savings account to higher yielding ones.
I am tired of hearing people – young and old - explain to me that it isn’t worthwhile to seek a higher earning interest account. I am disappointed to see an article celebrate it. The reality is that the fact that some of the major brick and mortar banks can pay so little in interest while online banks, credit unions and even other local banks are offering so much is due in large part not just to apathy, but also to asymmetrical information. Just 3 minutes with the calculator will show you how important it is for your future and that of your heirs to move your cash to a higher rate.
