Best Interest Rates on Cash – December 2018

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Here’s my monthly roundup of the best interest rates on cash for December 2018, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 12/3/18.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring money electronically from your checking account to an online savings account. The interest rates on savings accounts can drop at any time, so I prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

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 and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a locked-in rate with no early withdrawal penalty. That means your interest rate can never go down, but you can still take out your money (once) if you want to use it elsewhere. Ally Bank 11-month No Penalty CD is at 2.25% APY for $25k+ balance, Marcus Bank 13-month No Penalty CD at 2.15% APY with a $500 minimum deposit, and the CIT Bank 11-Month No Penalty CD at 2.05% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Live Oak Bank has a 1-year CD at 2.85% APY ($2,500 minimum) with an early withdrawal penalty of 90 days of interest.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the money for themselves). 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 2.30% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.19%. 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 2.64% SEC Yield ($3,000 min) and 2.74% SEC Yield ($50,000 min). The average duration is ~1 year, so there is a little more interest rate sensitivity.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.66% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.75% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-Bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 11/30/18, a 4-week T-Bill had the equivalent of 2.30% annualized interest and a 52-week T-Bill had the equivalent of 2.69% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.18% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.07% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

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 2018 and April 2019 will earn a 2.82% 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-April 2019, 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. I don’t use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Signature purchases of $1,500 or more and a minimum balance of $25.00 at the end of the month is needed to qualify for the 6.00%.

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. I don’t use any of these anymore, either.

  • The best one left is Consumers Credit Union, which offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on cash back rewards elsewhere. Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

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 (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD.

  • Mutual One Bank has a 19-month CD at 3.04% APY ($500 min). 6 month early withdrawal penalty.
  • Greenwood Credit Union has a 5-year certificate at 3.75% APY ($1,000 min). Early withdrawal penalty is 6 months interest. United States Senate Federal Credit Union has a 5-year Share Certificate at 3.63% APY ($60k min), 3.57% APY ($20k min), or 3.51% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 3.10% APY and a 5-year non-callable CD at 3.55% APY. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.60% 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. As of 11/30/18, the 20-year Treasury Bond rate was 3.19%, so this EE bond is no longer offering a huge premium.

All rates were checked as of 12/3/18.





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Comments

  1. Douglas Fitzgerald says:

    Thank you for publishing these. How do you feel about VTIP? It’s a good short-term rate and gives me inflation protection.

    • I like VTIP as part of an investment portfolio, but you have to be prepared to give up some certainty in the short-term to get the inflation protection. The short-term rate is good right now, but your balance can actually go a bit negative short-term if the real rate or inflation changes, so it can be a little funky to use as an emergency fund.

  2. I see Hanscom Federal Credit Union has finally raised the rate on their CU Thrive account. It is now 5% which is up from 3%.

  3. MySavingsDirect offers a savings account with no fees and minimums with 2.40% APY.

    • MySavingsDirect does offer a competitive rate. Here are few things to know. First, they will DENY outgoing ACH transfers initiated by any another bank or institution. So if I link that account to Ally Savings, and initiate a transfer from them to Ally, they will deny it without warning. Nearly no other bank does this. You can’t withdraw money for taxes, pay a credit card bill, etc. The only way you can get your money out is via a transfer initiated on their site to your 2 linked bank accounts.

      Second, this bank is only for rate chasers that will keep paying attention as they will lower the rate over time to become non-competitive. Emigrant Direct is the same bank, but now only pays 0.50% APY.

  4. I love these monthly updates! Thank you! One correction: under “I Bonds” I think you meant to say: “I Bonds bought between November 2018 and April 2019…” (not April 2018).

  5. I have started to pay attention to tax exempt money market funds. Vanguard Municipal Money Market Fund (VMSXX) 7 day rate is 1.6%. With a marginal tax rate above 31% you can achieve a higher yield than with the prime fund. This might be a category for including on the monthly summary. I understand you cannot reasonable cover everything in your monthly report.

  6. Jason Boxman says:

    I wonder if it makes any sense to hold short term funds in T bills due to their tax advantaged status?

    Looks like I can also just read the linked post that probably answers my question.

    Thanks!

  7. Will Vio Bank work with Mint.com? I just like to make sure all my accounts can be managed on Mint.com before I open a new savings (chasing higher rates).

    Thanks!

    • Why not just try to add it as a new account at Mint and see?

      • I can add it on Mint but it requires a Username and Password to confirm they are integrated. I also called Vio Bank but they were not sure. Last year I opened a different bank account (not Vio) since it shows up on Mint but then found out later when trying to log in that they are not integrated. I love Mint but they don’t make this part easy on us!

        • I’m afraid I don’t have a Vio Bank account so I can’t say for sure. What bank did you have trouble with, if I may ask? Mint has been pretty good to me about offering bank integration if it is listed as an option. Some links require multiple tries if they use those personal security questions. I can even see my Fundrise account on Mint.

          • Northpointe Bank – it was listed on Mint.com but no integration. I even called NorthPointe and also confirmed with Mint.com support that there was no integration. The Mint solution was to just manually add as a “Property” asset but there would be no integration so I’d need to manually update. I decided to just close the Northpointe account since wasn’t worth the hassle. Trying not to repeat this time 🙂 Not a huge deal – Vio is at 2.35% – but I can also put in Ally No Penalty CD (2.25%) or CIT Bank (2.25% savings).

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