Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

A recent WSJ article by Jason Zweig calls attention to one of the hidden ways that brokerage firms make money from you. As interest rates rise, they go out and earn the highest market rates while giving you a lot less on your idle cash. The difference adds up to big profits.

Brokerage accounts used to make you buy a money market fund with a high expense ratio. These days, they use a “bank sweep” account. They advertise the FDIC insurance, but hide the fact that they often own the bank and are skimming millions in interest:

In a bank sweep, your brokerage automatically rakes together and deposits your spare cash in one or more banks. Banks hand the brokerage a hefty fee, and the brokerage hands you some crumbs. For any given investor, a few dollars from dividends or interest income don’t amount to much. Rolled together with idle cash from thousands of other investors, they can add up to millions.

Morgan Stanley. Ameriprise. E-Trade. If you dig through Schwab’s disclosure, you’ll see them state that “In setting interest rates, the affiliated banks may seek to pay as low a rate as possible”. Nice.

Default options often prey on your inattention and laziness. Here are some ways to avoid the low interest rates of the bank sweep accounts.

  • Explore all your sweep options. Some places give you multiple alternatives for your cash sweep. For example, Fidelity has Fidelity Government Money Market Fund (SPAXX), Fidelity Treasury Fund (FZFXX), and FCASH. The two funds have SEC yields over 1.5% right now, while FCASH earns only 0.25% on balances under $100,000.
  • Keep your cash accounts empty automatically. You can set up automatic dividend reinvestment, or perhaps an automatic deposit of dividends into a high yield savings account. That should keep most of your interest and dividends from piling up as cash.
  • Manually reinvest often or transfer to alternative funds. Keep an eye on your cash balance, and invest it as soon as possible into stocks, bonds, or a higher-yielding money market fund alternative. Some accounts offer a text alert if you balance exceeds a certain amount like $1,000.
  • Move your assets to another firm. Vanguard still has a decent sweep option (VMMXX, see below). Fidelity still has two decent money market sweep options as well (SPAXX and FZFXX).

Vanguard isn’t incentivized to play these interest-skimming games. Vanguard’s only sweep account nowadays is the Vanguard Federal Money Market fund due to new regulations (read more here). Vanguard used to have better options as the default account, but at least the Vanguard Federal Money Market fund still earns a decent SEC yield of 1.87% (as of 8/8/18). If you want, you can still move money manually into the Vanguard Prime Money Market fund, Vanguard Municipal Money Market funds, and the Vanguard Treasury Money Market fund which may do better on an after-tax basis.

On the flip side, if you are individual stock investor, this is why higher interest rates are good for brokerage firms like Schwab. If you believe in the future of low-cost index funds, Fidelity and Vanguard are not publicly-traded, but you can become a shareholder in Schwab. Heck, Schwab has even set up their “free” robo-advisor to profit from higher interest rates due to a sizable cash allocation. (I do not hold Schwab stock at the time of this writing, but it is on my watchlist.)

Bottom line. Check the interest rate on your brokerage sweep account – It might be a lot lower than you think. Consider taking action.

Should I Break My Bank CD Early and Pay The Early Withdrawal Penalty?

Interest rates continue to rise, and holders of existing certificates of deposit (CDs) may be wondering if it is a good idea to break their current CDs in order to take advantage of a new higher rate. Most CDs impose an early withdrawal penalty if you take money out before the CD matures. But the new rate is good enough, you might breakeven soon. This question is actually not that simple, as there are a few potential variables involved:

  • Existing CD: interest rate, maturity date, and early withdrawal penalty?
  • New CD: interest rate, maturity date, and early withdrawal penalty? Which term length is best?
  • How special is the new CD offer? Is it likely you’ll get the same rate in few months?
  • Future CD rates? What if the terms actually get better in the future?
  • Judgement date? One option may win after 2 months, but another might win after 1 year. What is the date of breakeven?

You can get an idea of the most recent top rates in my monthly interest rate roundup. All that said, here are two resources that can help you make the decision.

DepositAccounts has a simple CD Calculator that asks for the existing CD rate/length/penalty information but only the rate on the new CD. The calculator makes the simplifying assumption that your judgement date is the maturity date of the existing CD.

There are some potential issues, though. What if your new CD has a high interest rate but lasts another 5 years and has a huge early withdrawal penalty? You may come out ahead for the moment, but you’d be locking yourself in for another long period. There are scenarios where I might not agree with the conclusion given by this calculator.

The Finance Buff has a more detailed CD Calculator that requires more inputs and a bit of guessing. You will need to supply the new CD rate/length/penalty information and also guess the future rates when your existing CD matures. This calculator is more complex but gives you a more nuanced view of what happens both (1) when your existing CD matures and (2) when your new potential CD matures. Now you have essentially two judgment dates instead of one.

If a coder was willing to spend a little time, they could probably create a better calculator with a chart that would show visually how the interest (taking into any withdrawal penalties) would change over time for two (or more) different CD options. Essentially, it could compare results across multiple judgment dates. You could also calculate the breakeven date. (Future project, but if you have already done it, let me know and I’ll link to it here.)

Bottom line. If it were me, I’d use both of the two calculators above and get a rough answer. If it’s a slam dunk, then go for it. If the answers are close, I would probably only break the CD if it was an especially good promotional rate that was higher than the competition, like the expired Sharonview 4% APY CD earlier this year. Otherwise, the markets are suggesting that rates are likely to keep rising. I’d also make sure the new CD is not too long for my needs and that is has a reasonable early withdrawal penalty.

Best Interest Rates on Cash – August 2018

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 8/4/18.

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) and no max balance cap. Several others have similar rates (see interactive tool below). Customers Bank offers 2.25% APY guaranteed until 6/30/19, but with a minimum balance of $25k+. On the flip side, Redneck Bank offers 2.00% 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 1.80% 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 2.06% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.87%. 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 2.44% SEC Yield ($3,000 min) and 2.54% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.45% 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.

  • United Texas Bank has a 1-year CD at 2.80% APY. CIT Bank 1-year CD is at 2.50% APY ($1,000 minimum). Early withdrawal penalty is 3-months of 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.
  • 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 12-month CD, but the early withdrawal penalty is 90 days of interest. Meanwhile, Ally Bank has a 12-month CD at 2.40% APY with $25k+ deposit (2.25% 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). 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 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 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.

  • 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.)
  • 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 3.45% 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 8/4/18.

Interactive rate table. Above, I curate to list only selected banks with top nationwide rates, but if you want a more comprehensive listing of options, I am adding the interactive search tool below. You can adjust the account type (savings, CD term), zip code, and deposit amount. It won’t include every single bank out there, but it can be useful for comparison purposes. Disclosure: If you do end up opening a new account using this widget, I may receive a commission.



Best Interest Rates on Cash – July 2018

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

CIT Bank Review: Money Market 1.85% APY, 11-Month No Penalty CD 1.85% APY, 12-Month CD 2.50% APY

citbank200

Rates updated 7/4/18, added 1-year CD. CIT Bank (not to be confused with Citi Bank) is an online-only bank with a multi-year history of competitive rates. They don’t offer a checking account, so they focus on savings products with high interest rates. Here is their current line-up:

  • 11-Month No-Penalty CD at 1.85% APY. $1,000 minimum to open. 11-month CD with a fixed rate, but no withdrawal penalty seven days or later after funds have been received. This means that your interest rate will never go down, but you can still move out if interest rates go up.
  • Money Market Account at 1.85% APY, currently available on all tiers ($0+) with no max. $100 minimum to open, but $0 minimum balance requirement. Pay individuals with People Pay.
  • 12-month CD at 2.50% APY with a $1,000 minimum opening deposit. The penalty for early withdrawal is 3 months of interest.

As of 7/4/18, both the 11-month No Penalty CD and the Money Market are at 1.85% APY. The No-Penalty CD has a rate that can’t go down, but also has a $1,000 minimum balance. The Money Market rate could drop, but has more flexibility as you can easily make more deposits and also make 6 withdrawals every month.

CIT Bank recently upped the rate on their 12-month CD to 2.50% APY, which is a very competitive rate. Some people may choose to convert their No Penalty CD into this 12-month CD at a higher rate (but with penalties if you take an early withdrawal). You can use the same directions listed below to move your money within CIT Bank. The rest of the CD term lengths are currently not very competitive. (Okay, the 18-month CD is also at 2.50% APY.)

Check out my rate chaser calculator to see if it makes sense for you to move money over.

Existing savings customer? Upgrade now! Honestly, the only reason I can think of for them to create this new account is to avoid raising the interest rate on idle cash in their older accounts. If you already have an existing savings account, take a minute and upgrade yourself to the better interest rate. Click on “Open an Account” here, then “I have a CIT Bank account”, and then login with your username/password. You can do everything online and even fund your new Money Market account with an instant transfer from your existing Premier High Yield Savings. I wish I didn’t have to do this, but at least it literally only took a minute to complete.

citmm

New customer? Opening process overview. Here’s my review of the opening process if you are a new customer.

  • The application process was completely online. You provide the usual personal information.
  • You must submit to a credit check, but in my experience it was a “soft” pull which did not harm my credit. None of my various credit monitoring services showed it was a hard pull.
  • You may fund via (1) electronic ACH transfer, (2) wire transfer, (3) mobile check deposit via CIT Bank mobile app (iOS and Android), and (4) mailing in a paper check. There was no option for credit card funding. I picked online ACH funding and you need to provide routing and account numbers, followed by manual verification via micro-deposits after a day or two. There was no instant linking option via login information.

After deposit verification, then your funding will go through.

You have successfully verified your external account. Please allow up to 5 business days for your funds to appear in your CIT Bank account.
No further action is required for this account. Thank you!

citnewcd

How to transfer your money from an existing No Penalty CD into an new, higher-rate No Penalty CD (or any other new account). Let’s say you opened up a No Penalty CD at 1.55% APY, but then the rate for a new CD has risen to 1.85% APY. You have the option of moving the funds (with no penalty of course) over to a new CD with a new 11-month holding period. I just did this, and here’s the easiest way to do so:

  • Start a new online application for the 11-Month No-Penalty CD at 1.85% APY. Click on “Get Started”, and you will have the option to sign-in as an existing CIT customer.
  • After signing in, go through the opening process but choose to fund via “Mail in Check”. Your personal details should be filled in already to save time. Again, I did not observe any hard credit check. This will get you access to your new account number for the new No Penalty CD on the final “Congrats! Your account has been opened” page. Save/print this new account number!
  • Call CIT Bank on the phone at 855-462-2652, open M-F 8a-9p ET, Sat 9a-5p ET, Sun 11a-4p ET. Press “0” for operator. Tell them you opened up a new No Penalty CD and you wish to fund it by closing out your old No Penalty CD. They will verify your identity, ask for the new account number, and complete the transfer instructions while you are on the phone. My customer service rep was pleasant and helpful. I timed my call at under 8 minutes from start to end.
  • That’s it. The phone rep told me the entire process should take 1-3 business days to complete. Your new accounts will show up online. You can have the entire previous balance (including accrued interest) moved over, or another amount.
  • It would be nice if you could do this all online, but I don’t see an option to close the CD early online. Let me know if you know how.

User interface. While the front-facing website is pretty slick, after you login the backend is run by Fidelity National Information Services (subdomain ibanking-services.com). This is a popular backend software system used by many smaller banks who don’t want to create their own software from scratch. As of 3/3/18, the user interface was upgraded to be look more appealing and be more user-friendly. Two-factor authentication is available using voice or SMS.

There is also an app available (iOS/Android) provided by the same company. It is similarly functional and includes mobile check deposit. Here are some screenshots:

citapp

Bottom line. CIT Bank is a lean bank offering targeted products for folks looking to get higher interest rates on their cash balances. I have an account with them due to their low minimums (easy to move in and out) and their current aggressive rate-hiking. They don’t do physical bank branches, checking accounts, or fancy apps. However, I have been pleasantly satisfied with their customer service. Their most compelling products are their Money Market account ($100 minimum to open, no ongoing minimum), their 11-month No Penalty CD which combines a competitive interest rate with a $1,000 minimum deposit. The lack of a penalty means you are always able to move out to a higher rate, even within CIT bank itself. They also run occasional CD rate promotions (12-month at 2.50% APY currently).

Ally Bank 11-Month No Penalty CD Review: 1.85% APY for $25k+

Rates updated 7/2/18. Ally Bank raised the rate on their 11-month No Penalty CD and as well as other savings products. If you have older No-Penalty CDs, you may want to take advantage of this higher rate. Here are the new interest rates for the No Penalty CD under their tiered structure (as of 7/2/18):

  • 1.85% APY at $25,000 minimum opening deposit
  • 1.80% APY at $5,000 minimum deposit
  • 1.30% APY at no minimum deposit.

The 11-month No Penalty CD is unique in that while the 1.85% APY rate is locked in at deposit, you can still withdraw your principal and interest without penalty at any time (well, you do have to wait at least 6 days from the deposit date). In other words, your interest rate can never go down, but you can still jump ship if rates rise or if there is a better promo elsewhere.

If you recently opened one of these, remember that Ally Bank offers a “Ten Day Best Rate Guarantee”:

When you fund your CD within 10 days of your open date, you’ll get the best rate we offer for your term and balance tier if our rate goes up within that time. The Ally Ten Day Best Rate Guarantee also applies at renewal.

If you have an existing No Penalty CD past the 10-day rate guarantee, this means you may consider closing it and then opening up a new one at a higher rate. You will have to withdraw everything at once – there are not partial withdrawals. If you have an Ally savings or checking account, you can close the old CD, see the deposit in your savings/checking, and open up a new CD all in minutes online. (Note that savings accounts are limited to 6 withdrawals per month, so use your checking if possible.) You will be extending the term out another 11 months, but since you can always close it at any time it isn’t much of a concern.

Here’s a screenshot of my withdrawal showing no penalty and instant availability when withdrawn directly into an Ally account:

ally_np_withd

You can use my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over.

Alternatives to consider.

  • Ally Savings is now at 1.75% APY, while other online savings accounts rates are even higher. You gain liquidity, but rates can also change on you.
  • Ally 12-month CD is now at 2.30% APY with a $25k+ deposit (2.20% APY with $5k), and the 2-Year “Raise Your Rate” CD is at 2.50% APY with no minimum deposit. Both of these do have early withdrawal penalties..
  • CIT Bank 11-Month No Penalty CD is a similar product, currently at 1.85% APY but with a lower $1,000 minimum deposit. These two banks both offer 11-month No-Penalty CDs, and I’ve opened (and closed early) CDs from both places..

I use Ally Bank Online Savings, Interest Checking, and No Penalty CD accounts as my “hub” bank accounts, and then I open additional bank CDs as temporary “spokes” when external rates are significantly higher.

Chase Bank $500 Bonus 2018 – $300 Total Checking + $200 Savings

Update with my experience. Just a quick note that I opened both the Chase Total Checking ($25) and Savings ($15,000) as directed below in March 2018. Direct deposit completed in April. $300 checking bonus received in April 2018 and $200 savings bonus received in June 2018. No extra communication required from Chase, and everything was delivered on time as promised. New link below with expiration date of August 6th, 2018.

Original post:

Chase Bank has a Total Checking + Savings account promotion offering up to $500 total for new customers. The notable requirements are that you must switch over a “real” direct deposit to get the $300 checking bonus, and you’ll need a $15,000 deposit for 90 days to get the $200 savings bonus. You enter your e-mail address, and you will get a unique code for your online application. Some of the language suggests you should reside near a physical Chase branch, but the link lets you apply online and it should work from anywhere (you will know via instant approval). If you already have a Chase credit card, the application can be pre-filled.

Chase Total Checking $300 bonus details. Checking offer is not available to existing Chase checking customers, those with fiduciary accounts, or those whose accounts have been closed within 90 days or closed with a negative balance. You must:

  1. Open a new Chase Total Checking account, which is subject to approval;
  2. Deposit $25 or more at account opening;
  3. Have your direct deposit made to this account within 60 days of account opening. Your direct deposit needs to be an electronic deposit of your paycheck, pension or government benefits (such as Social Security) from your employer or the government.
  4. After you have completed all the above checking requirements, [Chase will] deposit the bonus in your new account within 10 business days.

Avoid monthly service fees on Total Checking when you do at least one of the following each statement period. Otherwise a $12 Monthly Service Fee will apply.

  • Have monthly direct deposits totaling $500 or more made to this account; OR
  • Keep a minimum daily balance of $1,500 or more in your checking account; OR,
  • Keep an average daily balance of $5,000 or more in any combination of qualifying Chase checking, savings and other balances.

Chase Savings $200 bonus details. You must:

  1. Open a new Chase Savings account, which is subject to approval.
  2. Deposit a total of $15,000 or more in new money into the new savings account within 20 business days of account opening;
  3. Maintain at least a $15,000 balance for 90 days from the date of deposit. The new money cannot be funds held by Chase or its affiliates.
  4. After you have completed all the above savings requirements, we’ll deposit the bonus in your new account within 10 business days.
  5. 0.01% effective APY as of 5/7/18. Interest rates are variable and subject to change.

Avoid monthly service fees on Chase Savings when you do at least one of the following each statement period. Otherwise a $5 Monthly Service Fee will apply.

  • Keep a minimum daily balance of $300 or more in your savings account; OR,
  • Have at least one repeating automatic transfer from your Chase checking account of $25 or more. One-time transfers do not qualify; OR,
  • Have a linked Chase Premier Plus Checking, Chase Premier Platinum Checking, or Chase Private Client Checking account.

With a total opening deposit of $15,025 in new money, you can open both accounts and avoid both monthly fees. You’ll still need to change your direct deposit (any amount). I have read no reports of a “hard” credit check, and did not experience one myself either this time around or from a previous Chase offer from a couple years ago. Looks like a “soft” check to confirm your identity only (which is all banks should do…).

As reader R. Dannewitz helpfully points out:

Account Closing: If either the checking or savings account is closed by the customer or Chase within six months after opening, we will deduct the bonus amount for that account at closing.

After getting the bonus, you can avoid monthly fees until the 6 month requirement is over by taking the $15,000 out and just maintain a $500 direct deposit and a $25 auto-transfer from checking to savings. Alternatively, you could leave all but $1,500 in checking and $300 in savings and no worry about any other activity (my plan).

Bottom line. If you can switch over your paycheck direct deposit, Chase is offering $300 to try out their checking account. If you can move over $15,000 of new money for 90 days, Chase is offering another $200 to try out their savings account (a “savings” account that pays 0.01% APY??). Earning $500 on $15,000 in 90 days is the equivalent of 13.3% annualized return. That’s a lot more than a bank CD. The bonuses are considered interest and will be reported on IRS Form 1099-INT.

Northern Bank Direct Money Market Review – 2.26% APY Guaranteed Through June 2019

Update: As of 6/20/18, the rate is now down to 1.50% APY. I hope everyone who was interested got the 2.26% APY rate, you definitely had time and they did give roughly a 24-hour notice.

Here comes another new “Direct” bank leapfrogging the current competition for some attention. The Northern Bank Direct Money Market account is offering 2.26% APY on average daily balances up to $250,000, and the rate is guaranteed through June 30, 2019. Of course, another bank could take the throne tomorrow, but at least this one comes with a rate guarantee. Other highlights:

  • $5,000 minimum to open.
  • Includes limited checkwriting and ATM debit card access.
  • No minimum balance requirements or monthly service charges.
  • Interest is compounded monthly and credited monthly. If you close your account before the interest is credited, you will not receive the accrued interest.
  • Read full review for notable quirks.

Northern Bank Direct is the online division of Northern Bank, a community bank in the New England area. You must open accounts online, but you can do transactions in their branches and use the NBTC Mobile Banking apps. They also offer various certificates of deposit, including currently a 30-month CD at 3.01% APY ($500 minimum to open, 12-month early withdrawal penalty). Their routing number is 011303097. You can contact them at 844-348-8996 EST Monday-Friday: 9a-6p, or via email to nbdirect@nbtc.com.

Money Market features. This is a money market account, which is similar to a savings account but adds limited checkwriting and an ATM debit card. You are still limited to 6 withdrawals per month, whether via online electronic funds transfer, check, wire, or ATM machine.

ACH limitations. Northern Bank Direct has a somewhat weird rule that if you initiate a electronic transfer from your Northern Bank Direct account, there is a maximum daily limit of $5,000.00 (or the available balance in your account, whichever is less) for Interbank (external) transfers per transaction; $5,000 in aggregate per day; and $25,000 in aggregate per calendar month. If you initiate the electronic transfer from an external financial institution, Northern Bank Direct does not impose a limit on the amount of the transfer.

Notable fees. According to their full Deposit Account Agreement, there are a few other fees that caught my eye:

  • Account closure (by mail): $10
  • Dormant Accounts fee (per month– starting in the 13th month for account balances less than $500.00): $4.00
  • External Transfer Fee (per transfer): $3
  • New account closure within 120 days: $25

It appears that not only do they limit your transactions to $5,000 per day ($25,000 per month), they will also charge you $3 if you initiate the transfer from your Northern Bank Direct account. There are some reports that they are removing the $3 fee, but I still see it on their online fee schedule. Hopefully, you already have a favorite “hub” bank account with free, fast transfers and high dollar limits (mine is Ally Bank).

These fees are notable as other online savings accounts have all of the following: no minimum opening balance, no minimum balance requirement, no early closure fee, and/or no inactivity fee.

Smartphone app. It’s amazing how much I bank from my phone these days, from checking balances to mobile check deposit. Based on the app store screenshots, it looks like Northern Bank also outsourced their back-end software to Fidelity National Information Services (subdomain ibanking-services.com). In my experience, the app is basic but functional. Mobile check deposit and Touch ID are supported.

Bottom line. The Northern Bank Direct Money Market account is offering 2.26% APY on average daily balances up to $250,000, with the rate guaranteed through June 30, 2019 ($5,000 minimum to open). In terms of liquid savings accounts, this is the highest rate currently available (with a few quirks noted above). There are a few short-term CDs with higher rates (and withdrawal penalties), but this is more like a no-penalty CD plus you can also add funds at any time. If you have a large cash balance and you want to preserve your liquidity options, this is something to consider. Act fast though, as previous similar accounts have closed to new applications after a few weeks.

Check out my Ultimate Rate-Chaser Calculator to estimate how much additional interest you’d earn if you switched over and make an informed decision.

Best Interest Rates on Cash – June 2018

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 6/3/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, 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.

  • VirtualBank has a special rate of 2.01% APY (guaranteed for first year) for new money ($100 min to open). After the first year, it goes back to the “normal” rate (currently 0.80% APY). CIT Bank Money Market recently raised to 1.85% APY (no min, $100 to open).
  • 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 no longer at the very top anymore, with a current rate of 1.60% APY. I’ve moved some money into 12-month CDs, right now they have a 12-month CD at 2.25% APY ($25k min).

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 1.91% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.72%. 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 2.32% SEC Yield ($3,000 min) and 2.42% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.3% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.32% 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.

  • As noted above, VirtualBank has a 1-year guarantee at 2.01% APY on their eMoney Market, where you can take out money at any time. Another alternative is 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 smaller increments if you want more flexibility.
  • Connexus Credit Union is offering a 1-year Share Certificate at 2.50% APY (90-day early withdrawal penalty) and a 3-year Share Certificate (180-day early withdrawal penalty) at 2.75% 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.
  • Several other banks have 12-month CDs at 2% APY and above. Watch the early withdrawal penalties. For example, Synchrony Bank has a 2.35% APY 14-month CD, but the early withdrawal penalty is 180 days of interest. Meanwhile, Ally Bank has a 9-month CD at 2% APY and a 12-month CD at 2.25 APY with $25,000 minimum deposit 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 June 2018 is no longer accepting new accounts. Current cardholders will cease earning 5% APY at the end of June. The only notable card left in this category is Mango Money at 6% APY on up to $5,000, but there are so many hoops and restrictions that in my opinion make it not worth the troubl (especially when it likely won’t last much longer either).

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 quickly, leaving a “bait-and-switch” feeling. For example, Northpointe Bank was mentioned for several months here but later dropped to 1% APY. 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 and Fidelity are showing a 3-year non-callable CD at 3.00% APY and a 5-year non-callable CD at 3.25% APYfrom a few banks including Goldman Sachs and Wells Fargo. Watch out for higher rates from callable CDs listed by Fidelity.
  • Ally Bank has a 5-year CD at 2.60% APY ($25k minimum) with a relatively short 150-day early withdrawal penalty. For example, if you closed this CD after 2 years you’d get a 2.07% effective APY after accounting for the penalty.

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 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.) Unfortunately, current CD rates do not rise much higher even 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 6/3/18.


CIT Bank No-Penalty CD

Best Interest Rates on Cash – May 2018

cream225Interest rates are rising. Rate-chasing is becoming more worthwhile again. 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 switched over. Rates listed are available to everyone nationwide. Rates checked as of 5/1/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, 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.

  • Popular Direct is at 2% APY with a $5,000 minimum opening deposit. SalemFiveDirect is at 1.85% APY, albeit for new money only/not valid for existing customers. DollarSavingsDirect is at 1.80% APY (no min). CIT Bank Money Market is at 1.75% APY (no min, $100 to open).
  • 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 has been raising their rates, but it still lags a bit at 1.50% APY. I’ve been keeping more money in no-penalty/short-term CDs.

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 1.82% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.58%. 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 2.23% SEC Yield ($3,000 min) and 2.33% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.12% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.22% 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 11-Month No-Penalty CD is 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 smaller increments if you want more flexibility.
  • Several banks have 12-month CDs at 2% APY and above. Watch the early withdrawal penalties. For example, MidFirst Direct has a 2.25% APY 12-month CD, but the early withdrawal penalty is a fixed 1% of the amount withdrawn + $25. Meanwhile, Ally Bank has a 9-month CD at 2% APY and a 12-month CD at 2.10% APY with $25,000 minimum deposit 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.

  • 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 3% extra interest on $5,000 is $150 a year.

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 quickly, leaving a “bait-and-switch” feeling. For example, Northpointe Bank was mentioned for several months here but later dropped to 1% APY. 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.

  • Synchrony Bank has a 14-month CD at 2.35% APY ($2,000 min). Live Oak Bank has an 18-month CD at 2.35% APY and a 24-month CD at 2.50% APY ($2,500 min). Early withdrawal penalty for both banks is 90 days of interest.
  • Ally Bank has a 5-year CD at 2.60% 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 2.07% effective APY even after accounting for the penalty.
  • Mountain America Credit Union has a 5-year Share Certificate at 3.00% APY (minimum deposit varies). Anyone can join via a partner organization for a one-time $5 fee, usually right on the online application. However, note the early of withdrawal penalty of 365 days of interest. You can also find a 5-year non-callable brokered CD at 3.20% APY from both Vanguard and Fidelity. More info below.

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 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 3.25% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current CD rates do not rise much higher even 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 5/1/18.


CIT Bank No-Penalty CD

Savings I Bonds May 2018 Interest Rate: 2.22% Inflation Rate, 0.30% Fixed Rate

sb_poster

Update 5/1/18. The fixed rate will be 0.30% for I bonds issued from May 1, 2018 through October 31, 2018. The variable inflation-indexed rate for this 6-month period will be 2.22% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in May 2018, you’ll get 2.52% for the first 6 months. Not bad. See you again in mid-October 2018 for the next early prediction.

Original post 4/11/18:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a replacement for cash reserves (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the May 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a April 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. September 2017 CPI-U was 246.819. March 2018 was 249.554, for a semi-annual increase of 1.11%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.22%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in April 2018. If you buy before the end of April, the fixed rate portion of I-Bonds will be 0.1%. You will be guaranteed a total interest rate of 2.58% for the next 6 months (0.10 + 2.48). For the 6 months after that, the total rate will be 0.10 + 2.22 = 2.32%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on April 30th, 2018 and sell on April 1, 2019, you’ll earn a ~2.04% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.10% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of April 2018.

Buying in May 2018. If you buy in May 2018, you will get 2.22% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS is ~0.56%. My best guess is that it will be 0.20% or 0.30%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

So, which one? Buying in April 2018 would lock in a 11-14 month return equal to the top 12-month CD rates, which isn’t bad (plus the interest is exempt from state and local income taxes). If inflation picks up in the next year, you could still keep the bond and have potential upside. I would choose this option if I was treating savings bonds as short-term CD alternatives. However, if you buy in May 2018, your (real) fixed rate may be higher. This helps in the long run if you intend to keep these savings bonds indefinitely. I am a long-term holder (see below), so I am waiting until May.

Unique features. Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral (you don’t owe tax until redemption), exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation). There are also potential benefits when using the proceeds for college.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

SaverLife Review: Starting Saving $20 a Month, Get Another $10 a Month Boost

saverlife0The importance of an emergency fund is often mentioned, but often the hardest thing is to get started. SaverLife.org is a program run by the nonprofit EARN to help working families by encouraging savings. Their idea here, essentially, is to kickstart a savings habit by paying a cash incentive for saving a least $20 each month for 6 months.

How it works. First, make sure you are age 18+ and have a US bank or credit union account. Taken from their FAQ:

  1. Join now by clicking the “Join Now” button at the top right corner of this page.
  2. Enter your name and email address.
  3. Connect your bank account to SaverLife by entering your online credentials so we can track how much you save.
  4. Save at least $20 each month for 6 months in your own bank account. We don’t touch your money, so you’ll need to move money to your linked account yourself.
  5. Earn $10 in rewards each month that you save at least $20.
  6. After 6 months, you can claim your rewards ($60 max) by completing an exit survey and entering your bank’s routing number and your account number.

You can set a goal higher than $20 a month if you’d like, they just set the bar to be encouraging to as many people as possible to start saving. You’ll receive weekly savings tips as well. SaverLife is not a bank or savings account. The money paid is not interest. If you sign up by April 13th, they promise additional “prizes”. Here’s an example of the motivation behind the nonprofit EARN:

saverlife1

Ideally, you should connect a savings account as they will basically take a snapshot every 30 days to see if your balance is $20 higher than the previous month. For example, if you join on April 10th, then they will check your balance again on May 9th. If you have a savings account, it will be easier to make sure you qualify by simply adding $20 to the account. Having a separate high-yield savings account is a better way to encourage savings anyway.

Bottom line. SaverLife is a free program designed to encourage household savings for working households. Link a bank account and earn $10 cash for every month that you save at least $20 (up to $60 total). I think this is a worthy effort, although I hope they perform some honest, long-term tracking and share if it really helps to develop a regular savings habit.