Best Interest Rates on Cash Savings – July 2017

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Interest rates are slowly waking up from their multi-year slumber, so I am paying a bit more attention to the various changes each month. Don’t let a megabank pay you 0.01% APY or less for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Rates checked as of 7/4/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, the online banks with a history of competitive rates offer online savings accounts clustered around 1% APY. Remember that with savings accounts, the interest rates can change at any time.

  • As I’ve been “bait-and-switched” a few times, I try to stick with savings accounts that have a consistent history of competitive rates and a good user experience. My favorite is currently Ally Bank Online Savings, which recently bumped their rate to 1.15% APY.
  • The Mega Money Market accounts of both Redneck Bank and All America Bank (they are affiliated) are paying 1.50% APY on balances up to $35,000. Note that amounts over $35,000 earn only 0.50% APY.

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 inching upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF.

  • The Vanguard Prime Money Market Fund has increased their SEC yield now to 1.07%. The default sweep option is the Vanguard Federal Money Market Fund, which only has an SEC yield of 0.87%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • The following bond ETFs are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free trades, it may be worth a look. The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.49% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.53% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

Short-term guaranteed rates (under 1 year)
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, inheritance). Honestly, I wouldn’t get fancy or take unnecessary risk. Just keep it safe in a short-term CD or online savings account that in insured under the FDIC limits until you have a plan.

  • The Ally Bank No-Penalty 11-Month CD is now paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. The lack of early withdrawal means that you can your interest rate can never go down for 11 months, but you can still jump ship if rates rise.
  • Salem Five Direct is advertising 1.25% APY on balances up to $500,000. The good news is that this rate is guaranteed until 7/1/18 – more than a year away – and since it is a savings account you can still move your money in and out without penalty. The bad news is that this rate is for new customers only.

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 and October 2017 will earn a 1.96% rate for the first six months, and then a variable rate based on ongoing inflation after that. While that next 6-month rate is currently unknown, at the very minimum the total yield after 12 months will around 1% with additional upside potential. More info here.
  • In mid-October, 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 high interest rates. The risks are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although 3.09% APY on a $10k balance is more realistic unless you satisfy a long list of requirements. Note that the 4.59% APY requires you to apply and get approved for an additional credit card through them (other credit cards offer $500+ in sign-up bonuses) and also spend $1,000 on it every month. 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 on after-tax benefit). Find a local rewards checking account at DepositAccounts.

Certificates of deposit
If you have a large cushion, it’s quite likely to just sit there for years. One option is to keep your money in longer-term investments where you can still take it out in a true emergency and pay a reasonable early withdrawal penalty. Alternatively, you could create a 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 1.50% APY (90-day early withdrawal penalty) and a 3-year Share Certificate (180-day early withdrawal penalty) at 2.00% APY. Both have a $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offer a 3% APY CU Thrive “starter” savings account. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Ally Bank also has a 5-year CD at 2.25% APY with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months, you can get a 1.64% effective APY even after accounting for the penalty.

Longer-term Instruments
I’d use these with caution, 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 certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.60% APY (2.70% if you log into Fidelity). (Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.) Prices will vary daily.
  • 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). You could view 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. Too long for me.

All rates were checked as of 7/4/17.

Comments

  1. Goldman Sachs Bank is leading the pack with a low minimum balance savings account at 1.2%. They also credit your money on the day of the transfer in–not on the day it arrives. Since your headline says Best Interest Rates on Cash Savings, you should have mentioned them.

    • Goldman Sachs is certainly competitive at 1.20%, but they are not the best rate or “leading the pack”. DollarSavingsDirect is 1.30%. BankPurely is 1.30%. As listed above, Redneck Bank is 1.50% up to $35k and SalemFive is 1.25% guaranteed until 7/1/18.

      • You are correct. I didn’t make my main point clearly. I was looking at banks that, like your example Ally, don’t have a bunch of gotchas like having to be a new customer, having significant limits on external accounts, etc.

  2. Clearview Federal Credit Union is giving a 2% on 20 month CD.

    1. APY = Annual Percentage Yield. 2.00% APY offer for 20-month Certificate effective June 26, 2017 through August 31, 2017, and is subject to change without notice. Minimum $1,000 opening balance required; must be opened with 50% new funds not on deposit with Clearview. Offer valid for Consumer Certificates and IRA Certificates only. After 20-month Certificate matures, the Certificate will automatically renew at the current 18-month Certificate rate unless you indicate otherwise. Subject to penalty for early withdrawal. Forward this email to a friend–offer available to existing members and new members who join and open an account. Promo code: CRTEM

    • Thanks for your comment, but how easy it to join Clearview Federal Credit Union? It appears to only be available primarily to folks living in Southwest Pennsylvania.

      • Great question Jonathan. There was no fee for me to join. All I did was open a checking account with minimal amount and added several CDs at 2%. I will email the manager but not sure why this wouldn’t be available nationwide.

        • Jonathan for people outside of western PA here is the following qualifier:

          “If someone lives in another state the only way they can be eligible is if they are an immediate family member (spouse, parent, child, sibling, grandparent, grandchild) of someone who is eligible to join.”

          Thanks for being diligent on this!!
           

  3. Thanks, Jonathan!
    Appreciate you passing on options to park our safe money as rates gradually increase.

  4. Brad Forc says:

    I have been with Redneck Bank for a number of years.
    Pros:
    1) Their rates have consistently been or near the top rates available. I have never had to move money to another bank in an attempt to chase better savings rates.
    2) I had a problem once and needed customer support. A very nice lady in Oklahoma answered the phone and helped me find the answer.
    Cons: thier website is a little clunky. Since I don’t use it for anything like bill pay, I don’t really care. I keep money I don’t expect to ever need in a hurry.

  5. Hi Jonathan, the Vanguard Prime Money Market Fund has a expense ratio of 0.16%. Does this mean my net yeild will be 0.91% (1.07%-0.16%) ? Thanks for all the great info…Joe

  6. PHILLIP BACH says:

    Watch out for Salem 5,You can only transfer 5K at a time and,only once a day they charge $5.00 per transfer.
    There is a $3.00 charge also,can”t remember what it was for.
    I am going to close it very soon.
    Phillip B

    • Do they accept paper checks as transfer either via mail or smartphone app? That might avoid the fees. I find smartphone deposits are fairly quick.

  7. I have an account with Insight and got a letter in the mail and notices when I log in that they are switching banks. We have been told to use up all the funds in the card and savings account. The 5% for the savings account ended July 1st. Right now it’s 0%. I don’t know if they will start up the 5% thing after they switch. It’s very unclear from the website and I’ve taken out all my money that was in there. It was good while it lasted.

  8. Nice insight. Found it very useful. Thank you.

  9. Dollar Savings Direct is now @ 1.40%.

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