September 2019 Savings and CD Update – Where to Find Safety

It is the end of the summer and Labor Day is upon us. It is a nice time of the year. Unfortunately, conservative savers this year are faced with a dilemma of declining savings rates ahead of a Federal Reserve meeting in September where the Fed could lower as much as 50 basis points as Powell and the other Fed governors give into Presidential harassment. There is also the possibility that the Fed could focus on the economy and the continued strong stock market and raise rates back to a 2.25% to 2.50% range that it was at before their most recent cut on July 31.

It is unfortunate that so many major online banks have been so hasty to cut online savings rates. We still, however, see some banks withcompelling rates. These generally fit into two categories.

First, our savings table shows that there are some online banks that have held rates firm. Popular Direct and My Savings Direct, a division of Emigrant Bank, are still offering 2.55% and 2.40% on savings as of today. CIT Bank is more well recognized and is still offering 2.30% on balances over $25,000. While any of these rates could fall at any time, banks that hold their rates constant at what may be the beginning of a cycle of rate declines often signal a hesitancy to reduce rates and risk losing deposits.

Second are those new entrants to the online savings game. Just within the last two months, we’ve seen launches of Brio Direct and Fitness Bank. The reviews on these banks show that there are real issues (we’ve actually removed Fitness Bank from our tables because their limitations make it a difficult choice for all but those who are depositing very small amounts). But, new entrants can often be eager to gain a foothold in the online savings market and are, therefore, particularly reluctant to reduce rates ahead of a prospective Fed cut (and even often late to reduce after a Fed cut). That having been said, Fitness Bank did reduce the rate for those customers in its most active tier from 3.00% to 2.75% APY today.

Those who are particularly anxious about a large and unnecessary decline in the Fed funds rates really need to look outside of savings to protect their assets. Short-term CD rates are firm, but will decline if the Fed actually cuts by 50 basis points. On a one-year CD, you can still get rates around 2.40% to 2.50% which is not that bad especially considering the fact that when expectations were quite different in February and March, these rates never got above 2.85%. We strongly recommend that depositors only use one-year CDs that have early withdrawal penalties of 3 months or less. Ally Bank’s early withdrawal penalty on one-year CDs is only 2 months and CIBC Bank’s is only 1 month. Low early withdrawal penalties can protect you if you need your assets for an emergency or an unexpected large purchase. They will also protect you from the unlikely event that all this craziness ends and the Fed resumes the course that Powell originally laid out in 2017 and 2018.

Have a great month!