Archives for 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.