Best Interest Rates on Cash – May 2018

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cream225Interest rates are rising. Rate-chasing is becoming more worthwhile again. 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 5/1/18.

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.

  • Popular Direct is at 2% APY with a $5,000 minimum opening deposit. SalemFiveDirect is at 1.85% APY, albeit for 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 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 has been raising their rates, but it still lags a bit at 1.50% APY. I’ve been keeping more money in no-penalty/short-term CDs.

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 1.82% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.58%. 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 2.23% SEC Yield ($3,000 min) and 2.33% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.12% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.22% 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.

  • 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 keep full liquidity. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • Several banks have 12-month CDs at 2% APY and above. Watch the early withdrawal penalties. For example, MidFirst Direct has a 2.25% APY 12-month CD, but the early withdrawal penalty is a fixed 1% of the amount withdrawn + $25. Meanwhile, Ally Bank has a 9-month CD at 2% APY and a 12-month CD at 2.10% 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.

  • 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 3% extra interest on $5,000 is $150 a year.

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.

  • Synchrony Bank has a 14-month CD at 2.35% APY ($2,000 min). Live Oak Bank has an 18-month CD at 2.35% APY and a 24-month CD at 2.50% APY ($2,500 min). Early withdrawal penalty for both banks is 90 days of interest.
  • 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 still get a 2.07% 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. You can also find a 5-year non-callable brokered CD at 3.20% APY from both Vanguard and Fidelity. More info below.

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 3.25% 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 5/1/18.


CIT Bank No-Penalty CD



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Comments

  1. The Synchrony Bank 2.35% CD is a great offer for the time period of just barely over a year, I opened one earlier today. I believe it’s currently the highest rate out there for this length time period (which you can verify at bankrate.com).

  2. Wow, rates are getting interesting. I cant imagine seeing a 3 or 4 percent money market again.

  3. Gregory Eidinov says:

    Jonathan, what about CapitalOne360 as hub bank? They seem to have better rates consistently over Ally. Is it just not worth the bother basically?

    • CapOne360 is okay. I used to use them heavily, but their rates went down and only recently came back up. Once I leave, it’s hard to get me back. You hear that Ally?! 😉

      Ally’s been doing stuff like 9-month No Penalty rates, 12-month 2%, 9-month 2%. It’s been keeping me interested but if they lag enough, I’ll have to move despite my inertia with them. A lot of my cash has been committed to previous 3% and 4% APY CD deals.

      • Gregory Eidinov says:

        Ah. Now that makes more sense )

        • P. Radcliffe says:

          I’ve been with ING/Cap1 360 for years and have been satisfied with their almost top rates and good service. However, be aware that Cap1 360 does not permit beneficiary or Pay on Death accounts. Expect your heirs to have to go through probate (at a cost to them) to get your money after your death. Just not worth it to me so I am going to close my 360 accounts and go to one of the many banks that permit your money to go directly to your beneficiaries without probate. Shame.

          • Gregory Eidinov says:

            Hm! That is silly of them. Wonder why. Does Ally, do you know? Looking for the best “hub” bank to move monies to.

  4. Gregory Eidinov says:

    Also EBSB Money Market (Low $2,500 minimum to open) looks like the best deal in 100% no penalty liquid cash (http://www.ebsbdirect.com/money-market-special-3)

  5. As of April 26th, Capital One 360’s Money Market accounts get 1.60% APY if your balance is $10k or greater. Under $10k, its 0.85%, which is still pretty solid.

  6. PurePoint has consistently stayed close to the top with savings & 1-year CD. I moved most of my money from Ally to PurePoint. Their savings rate is 1.75% (vs. Ally 1.50%), and 1 year CD is 2.20% (vs Ally 2.10%)

  7. Gregory Eidinov says:

    Btw, the only true 3% 5 year CD I have found so far is American Bank: https://www.ambk.com/rates/personal-deposits/cds/

  8. Justjoeguy says:

    According to Vanguard the VUBFX fund only paid .05880 cents since January 1, 2018. At that rate and assuming a price of 9.95 this fund would only return 1.7729%, far short of the 2.34% reported.

  9. Ally just bumped up their 12 month CD to 2.25%.

  10. Jonathan, what are your thoughts on using a municipal bond fund, e.g., Vanguard Intermediate-Term Tax-Exempt Fund (VXITX), as part of one’s cash reserves / emergency fund? By definition, these reserves should come from non-retirement accounts, so why not get similar or better interest rates to a 5 year CD and pay less tax on them? Do you consider them insufficiently safe for the purpose of cash reserves?

  11. Elaine S. says:

    I currently have some money in Discover Bank and one of theirs CDs, and recently, they advertised 2.08% interest rate on 12-month CD, minimum deposit $2500. Thank you Jonathan, for your wonderful website.

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