Archives for April 2018

The 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:

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.

(Update 5/18/18: Looks like the available rate to new applicants is now down to 1.85% APY. This is why I don’t like switching savings accounts nearly as much as locking in a good CD rate.)

The Popular Direct Exclusive Savings account, offered under the FDIC certificate of Banco Popular North America (BPNA), is the first liquid savings account to reach 2% APY in several years. This is a big psychological threshold, so let’s take a look to see if it’s worth the hype.

Note for existing customers. This account appears to be a “new” flavor of savings account, so if you are an existing Popular Direct customer, you may need to open up a new “Exclusive Savings” account to get the higher interest rate. You might also want to leave $500 in that old account if it’s new to avoid the early closure fee… but also close that account to avoid inactivity (see fees below). Banks always be trying to take advantage of your inaction…

Piggyback-style account. This accounts follows the many other barebones online savings accounts with a higher interest rate but limited features. Deposits are only permitted through a single designated “External Account” which can’t be changed within the first 60 days, internal transfers from other Popular Direct accounts, ACH, or via Mobile Check Deposit through the Popular Direct mobile app. This is why it is good to have a “hub” bank with fast transfers and multiple linked banks allowed in order to move funds around. I use Ally Bank as my hub since it has 1-day transfers available and allows you to link up to 20 different banks.

Notable fees. This account has a few annoying “nickel-and-dime” fees that you don’t always find elsewhere, so please take a look at their fee list:

• Minimum to open: $5,000
• Minimum daily balance: $500, otherwise $4 monthly service fee applies.
• Early closure fee: $25 if account closed within 180 days.
• Inactivity fee: $5 per month if no activity for 12 months.

Many other online savings accounts have 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 Popular Direct 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. Popular Direct Exclusive Savings Account is notable as the first liquid savings account (back) at 2% APY. For the most part, it is like many other copycat online savings accounts, but they did add some minor niggles including a $500 minimum balance and an inactivity fee. 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. I believe that other banks will soon follow at 2% APY, so it may not be worth the effort for a non-guaranteed rate.

This WSJ article had a chart that illustrates why I run this update every month. Deposit rates at the big banks will stay low for as long as enough people don’t move their funds elsewhere. The rising Fed rate changes nothing by itself. However, if you had a top online bank account, you would have earned consistently more than the Fed rate. You need to take action. Many businesses are built to profit from your inaction.

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 4/1/18.

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.

• SalemFiveDirect is at 1.85% APY (no min, $100 to open, 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 rates, 1-day external bank transfers, and overall user experience. I then move money elsewhere if the rate is significantly higher (and preferably locked in via CD rate). 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 1.45% 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 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 1.68% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.50%. 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 2.15% SEC Yield ($3,000 min) and 2.25% SEC Yield ($50,000 min). The average duration is ~1 year.
• The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.89% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.11% 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 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 can always jump ship if rates rise. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
• NASA Federal Credit Union has a promotional 11-month CD at 2.25% APY ($20,000 minimum). However, you should be sure to keep it in there the entire term as the Early withdrawal penalty is 182 days of interest. Ally Bank has a 12-month CD at 2.00% APY again, but 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 November 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
• In mid-April 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 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. 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 recently stopped accepting new applications and a few months later dropped to 1% APY for existing customers. 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.

• Live Oak Bank has an 18-month CD at 2.40% APY and a 24-month CD at 2.55% APY ($2,500 min). Early withdrawal penalty is 90 days of interest.
• Ally Bank has a 5-year CD at 2.50% APY ($25,000 minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 2 years you’d still get an 1.99% 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. I previously ran a Ally vs. Connexus 5-year CD comparison to show the effect of a larger early withdrawal penalty. Rates may have changed since that post was published.
• I just wanted to mention that for one week in March, I posted that there was a 64-month CD at 4% APY at Sharonview Federal Credit Union. As forewarned, the offer was only available for a limited window of time. I hope you got in if you were interested. I opened a CD, and I felt that everything was run quite professionally. I’ll post about exceptional rates like these outside of these monthly summaries.

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 3.15% 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 4/1/18.