Rates checked as of October 3rd, 2015. Our family keeps a year’s worth of expenses (not income) put aside in cash reserves; it provides financial insurance with the side benefits of lower stress and less concern about stock market gyrations. In my opinion, emergency funds can have a better return on investment than what you see on your bank statement.
I don’t chase rates nearly as much as I used to, but it still pays to shop around. Too many places are paying ZERO or close to it – most mega banks, short-term US Treasuries, and money market sweep funds. Chase offers on a 1-year CD? 0.02% APY. Bank of America on their 10-year CD? 0.15% APY. Meanwhile, the rates below vary from 1% up to over 3% annualized.
Best Currently Available Interest Rates
Here is a brief roundup of the best interest rates available on deposits backed by the full faith and credit of the US government (FDIC-insured, NCUA-insured, US Treasury Bonds, US Savings Bonds). I will try to sort them from the shortest to longest maturities.
- High-yield savings accounts
- Online savings accounts, everyone’s got one these days. Currently, the ones with a history of competitive rates are around 1% APY. These savings accounts can change their interest rate at any time, so if you’re going to just pick the highest one, be ready to move your money.
- Short-term guaranteed rates (under 1 year)
- Everbank Yield Pledge Money Market and Interest Checking account both offer 1.60% APY guaranteed (balances up to $150k on the Money Market) for the first 6 months for new accounts. Since it is fixed, this is essentially a 6-month CD with a higher rate than any other 6-month CD rate out there and with no early withdrawal penalty to worry about.
- Flexible Savings Bonds
- Series I Savings Bonds offer rates that are linked to inflation. Unfortunately, “I Bonds” bought right now will earn nothing for the first six months, and then a variable rate based on ongoing inflation after that. For new money, I would wait until mid-October when the next rate adjustment is announced. More info here.
- Prepaid Cards with Attached Savings Accounts
- There is a special subset of prepaid debit cards that have the option of an “attached” FDIC-insured savings account with high interest rates. Balances are usually capped. Some of these have monthly fees and other fees for things like ATM withdrawals, so you should read the terms carefully.
- I am currently experimenting with the NetSpend Prepaid Visa and the Brink’s Prepaid Mastercard, both of which offer 5% APY on up to $5,000 each. (Having both means I have $10k at 5% interest.) If you are referred by an existing user (links above are mine), we can both get an additional $20 bonus after depositing at least $40. (You can only get one $20 bonus even if you open both, as they are from the same company.) Detailed review upcoming.
- 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 5.09% APY on up to a $20k balance, although 3.09% APY is easier to achieve unless you satisfy a long list of requirements. The rate is guaranteed until December 31, 2015, although that’s only 3 months away
- Certificates of deposit
- If you have a large cushion, it’s quite likely to just sit there for years. Why not put some money in longer-term investments where you can still take it out in a true emergency and pay an early withdrawal penalty. For example, Synchrony Bank (formerly GE Capital Retail Bank) is offering a 5-year CD paying 2.25% APY $25k+ balances (2.20% APY for $2k+) with an early withdrawal penalty of 180 days interest. For example, if you withdraw from this CD after 2 years and pay the penalty, your effective rate earned will still be 1.69%.
- Northwest Federal Credit Union has a limited-time CD offering 3.04% APY for 3-year term. $10,000 minimum and $100,000 maximum. Limited to new deposits only and limit 1 certificate per member. Early withdrawal penalty is 366 days of interest. Check if you qualify for free membership, but anyone can pay $10 to join a partner association and obtain membership that way. More details from Ken at DepositAccounts.
- Longer-term Instruments
- Willing to lock up your money for 10+ years? Did you know that you can buy certificates of deposit via Vanguard’s bond desk? These “brokered CDs” offer the same FDIC-insurance and are often through commercial banks like Goldman Sachs. As of this writing, you can get a 10-year CD maturing 10/2/2025 that pays 2.85% APY. Prices will vary regularly.
- 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 0.50% APY). Think of it as a huge early withdrawal penalty. You really want to be sure you’ll keep it for 20 years.
All rates were checked as of 10/3/15.