Best Interest Rates on Cash – January 2019

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Here’s my monthly roundup of the best interest rates on cash for January 2019, 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 1/9/19.

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 pile 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. Marcus Bank has 13-month No Penalty CD at 2.35% APY with a $500 minimum deposit, Ally Bank has a 11-month No Penalty CD is at 2.30% APY with a $25k+ minimum, and CIT Bank has a 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.
  • First Internet Bank has a 1-year CD at 2.89% APY ($1,000 minimum) with an early withdrawal penalty of 180 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 2.44% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.31%. 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 2.71% SEC Yield ($3,000 min) and 2.81% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.96% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.98% 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 1/8/19, a 4-week T-Bill had the equivalent of 2.40% annualized interest and a 52-week T-Bill had the equivalent of 2.60% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.24% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.16% 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 personally recommend or 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.

  • INOVA Federal CU has a 14-month CD at 3.00% APY and a 20-month at 3.15% APY ($200 minimum). 180 day early withdrawal penalty. Premier America CU has 15-month CD at 3.10% APY ($1,000 minimum). Anyone can join these credit unions with via membership in partner organization (see application).
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.69% APY ($60k min), 3.62% APY ($20k min), or 3.56% 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 2.75% APY and a 5-year non-callable CD at 3.20% 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 3.45% 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. As of 1/9/19, the 20-year Treasury Bond rate was 2.86%.

All rates were checked as of 1/9/19.



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Comments

  1. Not exactly ultra-short bond ETF, but FLOT (iShares Floating Rate Bond ETF) has a SEC yield of 3.19% , and it is buy (but not sale) commission free at Fidelity:

    https://screener.fidelity.com/ftgw/etf/goto/snapshot/snapshot.jhtml?symbols=FLOT&type=o-NavBar

  2. Rudi Pittman says:

    Navy Fed CD 17 month for 3.25% Up to 50K. Unlimited addons. Available till 04/30. Should have been 1st in cd list.

    • I actually had it in the list in my first draft, but NavyFed is not open to anyone nationally even with joining a partner organization for $10. They are strict on their membership now. I agree, it’s a good rate though and their add-on feature is customer-friendly.

  3. Looks like EBSB pulled their 2.5% account this morning.

  4. Jason Boxman says:

    How to calculate the APR for the 4 week treasuries? TD has a table, but it isn’t clear which number is the APR or if I need to apply a formula to it to arrive at the APR.

    Thanks.

    • I would just compare the coupon equivalent to APR. As taken from the quote page:

      The Bank Discount rate is the rate at which a Bill is quoted in the secondary market and is based on the par value, amount of the discount and a 360-day year. The Coupon Equivalent, also called the Bond Equivalent, or the Investment Yield, is the bill’s yield based on the purchase price, discount, and a 365- or 366-day year. The Coupon Equivalent can be used to compare the yield on a discount bill to the yield on a nominal coupon bond that pays semiannual interest.

  5. Charles George says:

    What do you think of https://firstclassdemandnotes.com/ which are currently paying 2.75%?

    • I personally don’t like demand notes like this as they are basically corporate bonds backed by a single issuer (and thus single point of failure). Ally Bank, GM, or in this case Mercedes Benz. They are not FDIC-insured and thus they are not cash equivalents in my mind. I know I list the Vanguard ultra-short fund, as I see it as the next notch up from cash since it is high-quality, very low-duration, and diversified across a lot of issuers. I also trust the management of Vanguard more than most other fund providers.

      Honestly, I don’t even consider an ultra-short bond fund as cash. The extra yield is not worth the loss in peace of mind. My retirement cash stash is only in FDIC-insured bank accounts, CD, and/or US Treasury bonds.

      • Charles George says:

        The https://firstclassdemandnotes.com/ demand notes just increased to 3%. I’ve had some money there for about a year and it’s very easy to wire money online back to my bank account–transfer typically happens within a few hours. But, I’m trying to understand my risk with this–Is the risk that Daimler AG (i.e. Mercedes-Benz) would go out of business?

        Thanks.

  6. Here is my take on getting into a high yield savings account (or similarly liquid No Penalty CD) versus getting in a regular CD that might be yielding an extra 40-50 basis points. Last year I immediately did the Synchrony Bank 2.35% 14-month CD around mid-2018, which seems like a great rate at the time. It is now about halfway through that CD term and currently we see banks like CIT offering 2.45% savings, Ally with 2.3% No Penalty CD, and Synchrony Bank savings at 2.2%. As a result I’m likely going to be choosing savings accounts (or No Penalty CD’s) over regular CD offerings because the savings rates are rising too quickly for the regular CD’s to be worth it. Unless the regular CD’s can offering something a bit better than half a percentage point higher for a 1-year term I think I will now pass on the regular CD’s and have my money both liquid and taking advantage of rising rates.

  7. Thanks for the roundup Jonathan! I have some cash in the 11-month 2.3% APY Ally No-Penalty CD, but am considering moving to the CIT bank 2.45% Savings Builder. Is there a time commitment/early withdrawal penalty for this CIT account? I couldn’t see anything regarding this in the fine print.

    • No time commitment or EWP etc, the CIT SB account is a SAVINGS account not a CD so no worries there. Just my opinion but I would stay put, those rates are so close and Ally is bound to raise them again at some point plus remember you LOSE interest for every day those funds are being transferred between accounts. Ally just raised their savings rate recently however the Ally NP CD was not raised as recently, so my guess is the Ally NP CD will be the next to go up. My 2c.

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