Best Interest Rates on Cash – July 2018

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Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 7/4/18.

High-yield savings accounts
While the huge brick-and-mortar banks like to get away with 0.01% APY, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • CIT Bank Money Market offers 1.85% APY with no minimum balance ($100 to open). Purepoint Financial offers 1.90% APY, but requires a $10k+ balance. Northpointe Bank is at 2.05% APY, but requires a $25k+ balance. On the flip side, Redneck Bank offers 2% APY but on a maximum balance of $50k.
  • My “hub” bank account is the Ally Bank Savings + Checking combo due to their history of competitive savings/CD rates, 1-day external bank transfers, and overall user experience. The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is currently at 1.75% APY. I then open other “spoke” accounts and CDs to lock in higher rates.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been rising. The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.


  • Vanguard Prime Money Market Fund currently pays an 2.04% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.83%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.39% SEC Yield ($3,000 min) and 2.49% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.44% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.47% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 1-year CD is now at 2.50% APY. Early withdrawal penalty is 3-months of interest. Alternatively, the CIT Bank 11-Month No-Penalty CD at 1.85% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you keep full liquidity. Full review. You can open multiple CDs in $1,000 increments if you want more flexibility.
  • Several other banks now have 12-month CDs at 2% APY and above. Watch the early withdrawal penalties. For example, Synchrony Bank has a 2.45% APY 14-month CD, but the early withdrawal penalty is 180 days of interest. Meanwhile, Ally Bank has a 12-month CD at 2.30% APY with $25k+ deposit (2.20% APY for $5k+) and early withdrawal penalty of 60 days interest.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between May 2018 and October 2018 will earn a 2.52% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-October 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The offers also tend to disappear with little notice. Some folks don’t mind the extra work and attention required, while others do. The Insight Card used to offer 5% APY on up to $5,000, but as of July 2018 is completely shut down.

  • The only notable card left in this category is Mango Money at 6% APY on up to $5,000, but there are many hoops to jump through. There is a $3 monthly fee and you need to maintain a minimum $800 net direct deposit each month. This means you can’t direct deposit $800 and also take out $800 via online transfer. Checks and ATM withdrawals have additional fees. The only thing left is to spend the money via the Visa debit feature (and miss out on 2% or similar credit card rewards).

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. That’s just how it goes with these types of accounts.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Connexus Credit Union is offering a 1-year Share Certificate at 2.50% APY (90-day early withdrawal penalty), a 3-year Share Certificate (180-day early withdrawal penalty) at 2.75% APY, and a 5-year Share Certificate (365-day early withdrawal penalty) at 3.25% APY. All have a $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 3-year non-callable CD at 3.00% APY and a 5-year non-callable CD at 3.30% APY from a few banks including American Express and Citibank. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.40% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 7/4/18.


CIT Bank No-Penalty CD



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Comments

  1. Rudi Pittman says:

    You are missing some decent alternatives. Ally has a 11 month no penalty cd paying 1.85% as well as their savings paying 1.75%. The big one though is Agriculture FCU (agfed.org) that has a 30 Month NO PENALTY CD paying 2.40%. It will cost you $20 to join going through their account process (non refundable donation to the zoo or arboretum association). Northern just recently had a mma paying 2.26% with 1 year guaranteed. Other banks will slowly follow so best to avoid locking in if you can help it.

  2. Until recently, I have used Alliant Credit Union as my hub account. However, I have now switched to using Fidelity Investment for my hub account. While not necessary, I decided to open a second brokerage account. This is not Fidelity’s cash management account, but a normal brokerage account. Fidelity allows you to do direct debits and deposits to a normal brokerage account, and if you wish you can add cash management features.

    The reason I did not choose a cash management account was because I wanted to use the sweep account for my cash, rather than a lower yielding FDIC insured sweep account. Note that Fidelity’s terminology for sweep account is Core Position. There are two Core Positions funds available at Fidelity – FZFXX and SPAXX.

    With a normal brokerage account, Fidelity includes your Core Position and other money market accounts in your cash balance available to trade or withdraw. It is my understanding that if I have a debit to my account that exceeds that amount in my Core Position that Fidelity will take the cash from another money market fund. I have not had this situation occur, so I do not have first hand knowledge. There are two other money market funds that could be considered – SPRXX and FZDXX for holding additional cash.

    I treat the Core Position like my checking account and the additional money market fund like my savings account. Currently, the lower yielding Core and additional money market fund from above are FZFXX and SPRXX, respectively. The 7-day yields are 1.53% for FZFXX and 1.86% for SPRXX. The yield on the 6/29/2018 distributions were 1.44% for FZFXX and 1.76% for SPRXX.

    Comparing Alliant Credit Union to Fidelity, I have increased the rate on my checking from 0.65% to 1.44% and the yield on savings from 1.60% to 1.76% during the last month. Alliant just recently increased the saving rate from 1.60% to 1.70%, but I expect that the Fidelity rates will continue to increase even faster than the Alliant rates.

    Because of the higher interest rates on the Vanguard money market funds, I looked into using Vanguard as my hub account, but the rules at Vanguard are different for both their normal brokerage and cash management accounts and I could not make it work for me.

    The change over from Alliant to Fidelity was relatively easy for me because I use the Bank of America bill pay system. I just added the Fidelity brokerage account to the “Pay From” accounts. I did this without having the checking option on my brokerage account. I did the same with my Merrill Edge account, but the rates on sweep and money market funds are not as good as at Fidelity, and I do not think Merrill adds money market funds to the cash available for trading and withdrawal. To add the Merrill Edge account as a “Pay From” account, I had to contact a representative to get the banking information to use. I could not do this at Vanguard.

    I don’t plan to close my Alliant Credit Union accounts, but the balances will be low. If the situation on rates changes back to being favorable to Alliant, I will increase the balances at Alliant and make payment my payments using Alliant again.

    If you like this idea for getting higher interest rates, please carefully investigate as to how it applies to your situation, remember there are additional risks associated with money market funds (no FDIC coverage and restrictions can be placed on certain money market funds), and verify the information I gave above.

    • Thanks for this post…I ended up setting something similar up this month using your post as a starting point. Ended up making the Fidelity CMA my new primary checking account and I just buy SPRXX manually each time a deposit comes in. It auto-redeem for debits and I use the Brokerage account as the “savings” account also with SPRXX (and some other investments). You can set it up to do overdraft transfers from the brokerage for no fee, and with their announcements at the end of last week they removed a bunch of other fees from the account, so now things like wire transfers are free (I believe in both directions, now, but haven’t tried one, yet.) . Basically means you can get a checking account that pays good interest, doesn’t require a bunch of transactions per month to get the rate, doesn’t have a withdrawal limit per month, refunds all ATM fees, and if you need something like a cashier’s check or large amount of cash same day, you can wire it back to a local bank and get it from there.

  3. How does an SEC Yield compare to APY when comparing a bond fund to a savings account/CD? What adjustment should be made to compare interest earned as income vs dividends from the fund?

    • Here’s what Vanguard says on their site:

      SEC yield. A yield for non-money market funds that’s based on a formula mandated by the Securities and Exchange Commission. It approximates the yield an investor would receive in a year by assuming that bonds in the portfolio are held to maturity, all income reinvested, and all fees and expenses factored in.

  4. The Synchrony Bank 14-mo. CD is now at 2.45%. Love this monthly article, great work!

  5. you can get higher Ally CD rate through Fidelity. For example 3% for 3 year CD. on the Ally website it is only 2.5%

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