Best Interest Rates on Cash – September 2018

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This is my monthly roundup of the best interest rates on cash, 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 9/4/18.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring some money electronically from your checking account to an online savings account. Keep in mind that the interest rates on savings accounts can drop at any time, so consider prioritizing banks with a history of competitive rates.

  • CIT Bank Money Market offers 1.85% APY with no minimum balance ($100 to open), no max balance cap. Redneck Bank offers 2.00% APY on a maximum balance of $50k. Several other established high-yield savings accounts are in this close range.
  • In terms of newcomers, Customers Bank offers 2.25% APY guaranteed until 6/30/19, but with a minimum balance of $25k+. Northfield Bank has a Platinum Savings Online (not their regular Platinum Savings) at 2.25% APY up to $100k, but there is an $8 monthly fee if under $2,500.
  • My “hub” bank account is the Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall ease of use. The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is currently at 1.85% APY. From here, I open “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 2.08% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.93%. 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 2.42% SEC Yield ($3,000 min) and 2.52% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.42% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.54% 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.

  • USALLIANCE Financial Credit Union has a 1-year CD at 2.75% APY ($500 minimum new money) with an early withdrawal penalty of 6 months interest. You must join the credit union first, but anyone can join via American Consumer Council (ACC). CIT Bank 1-year CD is at 2.50% APY ($1,000 minimum) with an early withdrawal penalty of 3 months interest.
  • For more flexibility, the Ally Bank 11-month No Penalty CD is at 2.00% APY ($25k minimum) and the CIT Bank 11-Month No-Penalty CD is at 1.85% APY with a lower $1,000 minimum. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you keep full liquidity. You can open multiple CDs in smaller $1,000 increments to get even more flexibility.

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). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice.

  • 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 flat 2% cash back on all purchases).

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 recently announced changes starting 10/1/18, including lower balance limits ($10k down from $20k) and more restrictive requirements, but also higher interest rates in some tiers. Free Rewards Checking now offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on 2% cash back elsewhere (or $10 a month after-tax). Thanks to reader Jonathan for the heads up. 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 building 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.

  • Synchrony Bank has a special 13-month CD at 2.65% APY ($2,000 min). Note that the early withdrawal penalty is relatively big at 6 months of interest. NASA Federal Credit Union has a special 15-month Share Certificate at 3.25% APY ($5,000 min, EWP 6 months). Anyone can join this credit union by joining the National Space Society (free). However, NASA FCU will perform a hard credit check as part of new member application.
  • Ally Bank has a 5-year CD at 3.00% APY ($25k minimum) with a relatively short 150-day early withdrawal penalty. For example, if you closed this CD after 2 years you’d still get a 2.39% effective APY even after accounting for the penalty. (2.61% at 3 years.)
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.53% APY ($60k min), 3.47% APY ($20k min), or 3.41% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • 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 3.35% APY. 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 3.45% 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 9/4/18.



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Comments

  1. Thanks for all the great information Jonathan. Regarding the Vanguard Prime Money Market, I noticed the expense ratio is .16%. Does that mean the “net” yield is 1.92% or do you think the yield is already inclusive of the expense ratio? Thanks in advance!

  2. Rewards checking account rates are not raising as fast as Iwas hoping with the excellent economy, raising home values, etc…

    I was hoping we’d be seeing 4 or 5% reward checking acct rates by now.
    (Consumers CCU should not even get a mention with their BS requirements).

    I have been stuck earning 3.01% (TX) for the past few years on $25k.

    • These rates aren’t here because economy isn’t actually that great. Watch for rates to be possibly halted or dropped again soon once the Fed hits the wall with interest on national debt, household debt, emerging market crisis, etc.

  3. Gregory Eidinov says:

    Feels like you should add category like “High-yield No Strings Checking Accounts”. Where there is no minimums or hoops to jump through and your monthly monies (one uses to pay bills etc) get a decent rate.

    Like Memory Bank Checking here: https://www.mymemorybank.com/home/products/earnmore_account

    1.6% interest and no minimum balance needed to earn it, nor monthly fee is bellow certain balance. They use the same free ATM network as CapitalOne 360. So far that seems the best one in such a category.

    • That’s a reasonable suggestion, I guess I don’t really pay attention to account type as much as just the interest rate itself. Memory Bank is the best rate that I’ve seen on a checking account with no debit card requirements, interesting that they decided to remove those.

      • Gregory Eidinov says:

        Hm. I guess you have a point. Why even worry about having a checking account, basically? Feels like there are still cases every other month or so where I do need to write a check. But most things can be done with a savings accounts now, like paying of credit cards, true…

        • Ah. That’s why we still need checking account. “Regulation D, also known as Reg D, is a Federal Reserve Board rule that puts a limit of six transactions per month on certain transfers and withdrawals from your savings or money market account. If you go over the limit, the bank or credit union can charge you a fee, close your account or convert it into a checking account.”

    • It looks like more free ATMs than Capital One. They list MoneyPass, SUM, and Presto in addition to Allpoint. These are listed in the section under fees.

      • Gregory Eidinov says:

        Ha. Good point. I did notice it’s easier to find free ATMs when I travel compared to how it was with Capital One.

  4. Jonathan’s information is always useful though what I find lacking in the discussion is almost always the same. How many people are writing to their Fed Governors or Powell and telling them that ordinary people who did nothing wrong back in 2008 are tired of being the punching bags for the criminal – to big to fail and to big to prosecute elite. And that we want interest rates normalized now.

    How about it ladies and gentleman….go to the Federal Reserve website….get their address and invest 50 cents in your right to be something other than digitally distracted sheep.

  5. burbank luther savings has 18 month step up cd which has an apy of 2.83%. minimum is $1,000.

  6. Interesting product. They pay 2.63% first 9 month and 2.88% the last 9 month. Wonder what the early withdrawal penalty is.

  7. Jared Ross says:

    How did Dollar Savings Direct Fall so far off the wagon?

      • Here’s my standard thing on Emigrant Direct, Dollar Savings Direct, and My Savings Direct.

        – These are all the same bank, but they separate them into three online banks in order to pay lower interest rates on “lazy” deposits. Emigrant used to be competitive, now it’s just sad. Dollar used to be competitive, but it’s already started to lag. My Savings is the newest and thus the highest rate. Be ready to move out your money once it drops as well.

        – None of the three banks allow online transfers to be initiated by outside banks. So I can’t push/pull from Ally bank to/from all my other accounts. You can only do transfers within their interface, and to/from the linked accounts which means sending in a physical voided check and other hassles for additional banks past the funding account. Finally, they only allow 2 linked bank accounts total anyway.

        – Basically, this bank puts up artificial barriers to moving your money out freely that hardly ANY other bank does. Online banks are supposed to be more convenience, not less. There are almost always other banks with similar rates with better customer service. If so, I would choose another bank over Emigrant/DollarSavings/MySavings.

        • Jared L Ross says:

          Jonathan,

          Thanks for clarifying that, it’s an interesting business model. Chase has big bonuses and then 0.01% interest. I would prefer Emigrant model to worrying about paying a fee to Northfield if I decide to withdraw funds and fall below the minimum balance. Emigrant doesn’t allow external transfers but their site is very easy to use and the external transfers only take one business day.

          Interestingly, I called Dollar Savings Direct, asking when they were going to raise their interest rate, they told me they had no plans to do so. I told him I was going to withdraw all my money (since Ally was paying more) and they still didn’t tell me about My Savings Direct.

        • Yes, they Are a bit gimmicky. Just going to do CD ladder instead. Thanks for your 4 cents.

  8. To sum up then. Best strategy now overall is to have the highest no minimum balance interest checking and 2 years worth of living expenses laddered in CDs. Think I’ll do that. Open a new CD every first Friday of the month for 24 months straight. And I guess if you already have 2 year “FU” fund saved up, the only question is where do you keep the monies from that whilst you are building the 24 month CD ladder. Also one should maximize IRA and 401K contributions and the rest should go to stocks and bonds. Or real estate.

  9. USALLIANCE Financial Credit Union dropped the CD rate to 2.6%. When I started the account opening process it was 2.75%, by the time the account got funded it was 2.6% and that’s the rate they gave me. Bait and switch!

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