Example MYGA Fixed Annuity Statement and Purchase Experience

Posted on October 29, 2020 // 10 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

As a follow-up to my post about MYGA fixed annuities, here are the details of my personal purchase to help remove some of the mystery from MYGAs. I bought the Personal Choice Annuity 5 annuity from Sentinel Security Life Insurance Company. Sentinel Security Life has been based in Utah since 1948 and is currently rated B++ by AM Best. Every annuity can be different, even from state-to-state. Here were my highlights:

  • Issue date: 9/30/2015
  • Amount invested: $10,000 (minimum $2,500)
  • Rate guarantee: 3.10% for 5 years
  • Free look period: 30 days (you can get a refund within this period).
  • Early Surrender Charge period: 5 years
  • Market Value Adjustment (MVA) period: 5 years

Basically, there are big penalties if I withdraw earlier than the 5 year period, but none as long as I don’t touch it for those 5 years. This limited liquidity is a part of the reason for the higher interest rates than other products. The main reason I picked this annuity is that it had one of the highest 5-year rates for an insurer rated B+ or higher (“Secure” by AM Best). The 5-year term made it easy to compare rates against either bank CDs or Treasury bond rates. The 5-year term would also be potentially useful for creating an annuity ladder – keep buying one every year, and you’ll eventually have the improved liquidity of an annuity maturing every year.

Purchase process. As noted previously, I went with Stan the Annuity Man. The details are a bit fuzzy as it was five years ago now, but basically his office sent over some snail mail paperwork and I returned it with a paper check. You get a booklet with the annuity contract, a glossy brochure, etc.

Ownership experience. Here is how this annuity balance should grow (compounding tax-deferred) by year:

This is pretty much how it worked out for me from September 2015 to September 2020. I basically did nothing for 5 years. It was very nice and quiet! No daily stock quotes, not even monthly statements. I only received a paper statement once a year with my updated balance. There was no additional junk mail or telephone solicitations. Here was my final statement for September 2020:

Renewal process. At the time of renewal, I received e-mail and phone reminders from Stan. I decided to just go with another 5-year term with Sentinel at 3.35% as it was still a top rate and it required no additional paperwork. I have been tracking the rates loosely, and the rate on this annuity was actually around 4% during much of 2019, but at the time of renewal it had gone down to 3.35%. As of this writing, the rate is down to 3.15% and is scheduled to drop further to 3.00% as of October 30th, 2020. I could have also exchanged into another annuity from a completely different insurer, which probably would have required a bit more paperwork.

Going forward. I intend to keep renewing at 5-year intervals to a competitive 5-year MYGA until at least I reach age 59.5 to avoid the 10% IRS penalty. The balance gets to grow and compound tax-deferred until withdrawal, and I treat it as part of my bond allocation. Eventually, I will try to time the withdrawals during a period of lower income to minimize the tax hit. I could also chose to convert it into a single-premium immediate annuity (SPIA) and create a lifetime income stream. As of right now, I’m not sure if I will be buying more. It depends on when my CD ladder matures and the competition at that time. I will have to weigh the higher rates and tax-deferral advantages against the added complexity, liquidity concerns, and non-zero default risk.

This was my thinking process as a DIY investor. I am not an insurance professional or investment advisor. This is a small portion of my portfolio and it may or may not be the right product for your situation.

Filed Under: Annuities, Banking //
Last updated: October 30, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

MYGAs: Fixed Annuities with Higher, Guaranteed Rates Like CDs

Posted on October 25, 2020 // 5 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

I’ve been seeing a lot of articles about alternatives to traditional bonds and their ultra-low interest rates. The 5-year US Treasury rate is closer to zero than even 1%, an all-time low even considering the past decade (source):

Warnings about the dangers of chasing yield are for good reason. We need to be very skeptical. In a relatively quiet corner of the annuity world, you can get a “guaranteed” rate of 3% and above. This chart from Blueprint Income (via indexfundfan) shows the gap between the top 5-year MYGA rate and a 5-year Treasury, with a rate difference of 3.20% as of September 2020. The gap is slightly smaller as of this writing in late October 2020.

This is a huge gap if the level of safety is comparable. But is it? I actually bought a $10,000 MYGA contract back in 2015 as an educational investment, but never really wrote about it because it is relatively complex and I wasn’t sure it was worth the additional effort when the interest rate gap was much smaller. But given the growing gap, I think a DIY investor should consider at least learn about it as a potential part of their toolkit in 2020.

What are MYGAs? A “MYGA” is a form of fixed deferred annuity that offers a multi-year rate guarantee. For example, they may promise an annual interest rate of 3% for 5 years. This is similar to the rate guarantee from a bank certificate of deposit. However, there are several important differences between a MYGA and an FDIC-insured bank CD.

Annuities are bad though, right? Not all annuities are the same. I like the slogan of Stan “the Annuity Man” Haithcock: “Will do. Not Might do.” In others words, look for concrete promises with no wiggle room, not a “theoretical illustration based on historical returns”. A deferred annuity should state a fixed interest rate (ex. 3% for 5 years). A single-premium immediate annuity should promise you a fixed monthly income for the rest of your life (ex. $1,233 per month). Hard numbers, not a confusing formula based on the stock market (always quietly stripped of dividends).

Annuities also have a bad reputation because many have high commissions to encourage their sale. Often, the worse the annuity, the higher their commissions. However, MYGAs have relatively low commissions, often between 1% and 2.5% upfront (one-time) for the most competitively priced ones. On the flip side, many financial advisors won’t recommend an annuity because they don’t get paid an “assets under management” fee on them (which might be 1% every year, forever!).

Early withdrawal penalties. However, all annuities do have some complications to understand. Once you buy an annuity, you must keep it in an annuity and not withdraw until age 59.5, otherwise you will be subject to a 10% penalty on top of the taxes owed. It is a long-term commitment of funds, similar to an IRA contribution. However, after a 5-year MYGA contract expires, you can simply roll it over into another 5-year MYGA with the same or different provider. This is what I plan to do until I am past age 59.5. If you buy an MYGA with after-tax money, your interest gets to compound tax-deferred until you make a withdrawal. This can be helpful if you have already maxed out your IRA and 401k limits. (You could also convert to a single-premium immediate annuity with a guaranteed income stream.) Upon withdrawal, you will owe income tax on the gains (not principal).

Additional liquidity concerns. An early withdrawal before the end of your fixed term also will be subject to another large penalty, including a market-value adjustment and surrender charges. Some MYGA contracts allow small withdrawals, like 5% or 10% of the purchase amount per year. In general, this is not a good place for “emergency funds”.

“Guarantee”. This word is used frequently with insurance and annuity products. “Guaranteed income.” This only means it is “guaranteed” subject the claims-paying ability of the issuing insurance company. What happens if the insurance company can’t pay? This falls back onto the coverage limits of your state’s Life & Health Guaranty Association. From NOLHGA.com:

State guaranty associations provide coverage (up to the limits spelled out by state law) for resident policyholders of insurers licensed to do business in their state. NOLHGA assists its member associations in quickly and cost-effectively providing coverage to policyholders in the event of a multi-state life or health insurer insolvency.

When an insurer licensed in multiple states is declared insolvent, NOLHGA, on behalf of affected member state guaranty associations, assembles a task force of guaranty association officials. This task force analyzes the company’s commitments to policyholders; ensures that covered claims are paid; and, where appropriate, arranges for covered policies to be transferred to a healthy insurer.

The task force may also support the efforts of the receiver to dispose of the company’s assets in a way that maximizes their value. When there is a shortfall of estate assets needed to pay the claims of covered policyholders, guaranty associations assess the licensed insurers in their states a proportional share of the funds needed.

While the coverage limits vary from state to state, virtually all states offer at least $250,000 in coverage for the present value of an annuity contract. (Connecticut, New York, and Washington offer $500,000 in coverage. In California, the limit is only 80% not to exceed $250,000.) Look up your specific state’s limits here and here. Here is a reference chart (click to enlarge, source):

Unfortunately, this is not the same as being backed by the federal government, as with FDIC-insurance. It’s not even a state government backing, as only the member insurance companies have agreed to cover each other in cases of insolvency up to the policy limits. The guaranty system has not resulted in a loss to consumers within the limits since their inception in the 1980s, meaning it worked through the 2000 and 2008 market crashes. In order to be a licensed member of that association, you need to maintain a certain level of financial stability and under regular audits. Each individual insurer also rated by various agencies like AM Best, Moody’s, or Standard & Poors. In the end, there remains a possibility that an extremely large event could happen that would result in the inability of the stronger companies to help all the weaker ones. I recommend reading this paper about how the state guaranty system works in a failure.

It’s hard to put a number on the possibility of a partial loss even with this state guaranty system, but I’d definitely rather be covered with it than without. In this older 2013 post, I wrote about MYGAs and how to structure your accounts to stay within your state’s specific coverage limits.

Higher-rated insurers typically pay lower interest rates, and lower-rated insurers typically pay higher interest rates. There are different strategies on how to navigate this system. One is to decide on the lowest safety rating that you will accept, and then find the highest interest rate available with that minimum rating. Another is to simply trust in the state guaranty system and treat all the insurers as equal as long as you remain below the state-specific coverage limits. In that case, you simply buy the highest interest rate available from a licensed insurer.

If you are trying to understand what the ratings mean, first refer to the AM Best Ratings Guide [PDF], which states that “A Best’s Financial Strength Rating (FSR) is an opinion of an insurer’s ability to meet its obligations to policyholders.” followed by:

  • A++, A+. Assigned to insurance companies that have, in our opinion, a superior ability to meet their ongoing insurance obligations.
  • A, A-. Assigned to insurance companies that have, in our opinion, an excellent ability to meet their ongoing insurance obligations.
  • B++, B+. Assigned to insurance companies that have, in our opinion, a good ability to meet their ongoing insurance obligations.

I don’t know about you, but I would rate that as “Super Vague++”. Marginally more helpful is the fact that in the past, AM Best categorized the following as “Secure” : A++, A+ A, A- B++, B+. Anything below that fell to “Vulnerable”.

Here is another chart from AM Best that lists cumulative impairments over different time periods (via the Bogleheads forum):

It is important to note that an impairment does not necessarily mean that the insurer could not pay out the interest. It simply means that some sort of negative action was taken by a state regulatory agency. The insurer may be put under “administrative supervision” and may later exit while never missing any payments. Or, the insurer may be taken into conservatorship and the assets sold/transferred to a solvent insurer, again never missing any payments.

Again, I would spread out my MYGA contracts across multiple insurers and make sure the final size is well below your state’s contractual limits. For example, if the limit is $100k you put exactly $100k in a single contract at 3% interest for 5 years, at the end you’ll have over $115,000 and thus have $15k of your funds exposed.

Where do I buy a MYGA? I am not a insurance professional and I’ve probably missed some details. But I also get no commission if you buy one of these things. As a consumer, you should know the MYGA commission is baked inside and the upfront price is the same no matter who you buy it from. Back when I bought my MYGA in 2015, I did my own research and chose to buy from “Stan the Annuity Man”. You can find the MYGA section of his site here with rates for your specific state. I had a positive experience and would recommend him, especially if you prefer to have a reliable person-to-person relationship with good communication. I am not affiliated with Stan, other than being a satisfied customer. In 2020, there are more “fintech” options including the Blueprint Income marketplace. Both of those websites are have an educational section with more information about MYGAs in general.

At the end of your MYGA contract, you will have short (30-day?) window where you can make a 1035 transfer to another annuity provider (or renew with the same provider at prevailing rate). I was given plenty of heads up by The Annuity Man team. Again, the price should be same no matter where you buy it, so I would pick the place you think you’ll get better customer service. It might even be a local broker.

Bottom line. This is a brief introduction to a unique annuity product called the MYGA (multi-year guaranteed annuity) that offers a fixed, tax-deferred yield that may be significantly higher than that of other investment-grade bonds like US Treasuries. There are many important factors to understand, including insurer stability ratings, state guaranty limits, liquidity rules, and surrender charges. I’ve probably overlooked something as well. MYGAs are best if you are a motivated DIY investor looking for higher-yielding fixed-income investments and have maxed out your other tax-deferred options like IRAs and 401(k) plans.

Filed Under: Annuities, Banking, Investing, Retirement //
Last updated: October 27, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Simple Credit Card / Brokerage / Bank Promotion Spreadsheet Template (Google Drive)

Posted on October 7, 2020 // Leave a Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

gsheetsIf you can’t tell by now, I enjoy participating in various credit card, brokerage, and banking promotions throughout the year. I think of it as a profitable hobby, as I enjoy trying out different financial products in addition to the thousands of dollars in extra income each year. Below is the simple spreadsheet that I use to I track all of the various the requirements and deadline dates involved. I also set online calendar reminders using those dates.

I just moved it over to Google Sheets – the first link will allow you to make your own personal copy to edit as you wish. Please don’t ask for access to the original sheet, as that would mess it up for everyone else.

 

I intentionally keep it rather minimalist. This Reddit template by u/garettg is another example with many more bells and whistles.

See also: MMB Simple Portfolio Rebalancing Spreadsheet Template and How I store my physical credit cards.

Filed Under: Banking, Credit Cards, Deals & Offers, Investing //
Last updated: October 7, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best Interest Rates on Cash – October 2020

Posted on October 5, 2020 // 2 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my monthly roundup of the best interest rates on cash for October 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and also invest in longer-term CDs (often at lesser-known credit unions) when they yield more than bonds. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 10/4/2020.

High-yield savings accounts
While the huge megabanks pay essentially no interest, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • Affirm has the top rate at the moment at 1.00% APY with no minimum balance requirements. I wonder how long this will last, as the rate is high but Affirm also charges really high interest to let folks buy jeans on a payment plan. There are several other established high-yield savings accounts at a little below 1% APY for now.
  • As noted in my past two monthly updates, I took a gamble and opened an HM Bradley last quarter, shifted over my direct deposit, didn’t withdraw it, and am now earning 3% APY on up to $100,000 of my liquid savings from October through December 2020. My long-term concerns still linger, but I am impressed that they kept their rates high for this quarter. You can still earn 1% for this quarter (and hopefully qualify for the higher tiers next quarter) if you can move over a direct deposit.

Short-term guaranteed rates (1 year and under)
A common question is 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 fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 0.75% APY with a $500 minimum deposit. AARP members can get an 8-month CD at 0.85% APY. Ally Bank has a 11-month No Penalty CD at 0.60% APY for all balance tiers. CIT Bank has a 11-month No Penalty CD at 0.35% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • CommunityWide Federal Credit Union has a 12-month CD at 0.95% APY ($1,000 min). Early withdrawal penalty depends on how early you withdraw. Anyone can join this credit union via partner organization ($5 one-time fee).

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 difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.

  • The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.05%. Vanguard Cash Reserves Federal Money Market Fund (formerly Prime Money Market) currently pays an 0.04% SEC yield.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 0.70% SEC yield ($3,000 min) and 0.80% 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 0.47% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 0.64% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that there was a sudden, temporary drop in net asset value during the March 2020 market stress.

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. Right now, this section isn’t very interesting as T-Bills are yielding close to zero!

  • 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 10/2/2020, a new 4-week T-Bill had the equivalent of 0.10% annualized interest and a 52-week T-Bill had the equivalent of 0.12% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.00% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -0.04% (!) 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. The annual purchase limit is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.

  • “I Bonds” bought between May 2020 and October 2020 will earn a 1.06% 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 2020, 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.
  • See note about EE Bonds as a potential long-term bond alternative.

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 nor use any of these anymore.

  • One of the few notable cards left in this category is Mango Money at 6% APY on up to $2,500, along with several hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

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. If you want rates above 2% APY, this is close to the only game in town.

  • Consumers Credit Union Free Rewards Checking (my review) still offers up to 4.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. The Bank of Denver has a Free Kasasa Cash Checking offering 2.50% APY on balances up to $25,000 if you make 12 debit card purchases and at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a savings account that pays 1.50% APY on up to $50k. Thanks to reader Bill for the updated info. Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. 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 to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • The Federal Savings Bank has a 5-year promo certificate at 1.50% APY ($10,000 min), 3-year at 1.20% APY, and 18-month at 1.10% APY. The early withdrawal penalty for the 5-year is 12 months of interest.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard has nothing special right now, I see a 5-year at 0.45% APY right now. Be wary of 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 early withdrawal penalties. At this writing, Vanguard has a 10-year at 0.65% APY. Watch out for higher rates from callable CDs from Fidelity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique 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 0.10%). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. Purchase limit is $10,000 each calendar year for each Social Security Number. As of 10/2/2020, the 20-year Treasury Bond rate was 1.25%.

All rates were checked as of 10/4/2020.

Filed Under: Banking, Deals & Offers, Investing //
Last updated: October 5, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Organize Credit Cards Physically Using Business Card Holders

Posted on September 20, 2020 // 4 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

A reader asked me how I keep track of so many credit cards, and I wasn’t sure what they meant. I track active credit card offers using online calendar reminders and a simple spreadsheet, but physically I keep them all in a business card organizer (if not in my wallet). I realized that I still had an old article published way back in 2007 about repurposing my old baseball card sleeves and a 3-ring binder. I’ve deleted that post since it’s very outdated and replaced it with this one, as I’ve actually used a business card holder for several years now. Mine looks almost identical to this 4.6 star item or this smaller 4.7 star version on Amazon (both around $7):

As a few readers back then noted, my baseball card sleeves were a little too big and the cards could fall out if the binder was tipped upside down. With these business card holders, the sleeves are smaller and the openings are on the sides for a much more secure fit. This also makes the overall package smaller, making it possible to keep nearly a hundred cards in a single, compact folder.

I have three of them altogether: one for credit and debit cards, one for gift cards and loyalty/membership cards, and one for business cards. Instead of a “sock drawer”, I have a subtle, black folder that blends in discretely on a bookshelf, and is also easy to quickly throw into a lockbox for added security. Of course, these days it’s also handy to keep all your credit card numbers in a password manager like Keeper or Dashlane.

Filed Under: Banking, Credit Cards, Simple Living //
Last updated: September 21, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best Interest Rates on Cash – September 2020

Posted on September 9, 2020 // 8 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my monthly roundup of the best interest rates on cash for September 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and also invest in longer-term CDs (often at lesser-known credit unions) when they yield more than bonds. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 9/9/2020.

High-yield savings accounts
While the huge megabanks still pay nearly zero, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • Affirm has the top rate at the moment at 1.00% APY with no minimum balance requirements. I wonder how long this will last, as the rate is high but Affirm also charges really high interest to let folks buy jeans on a payment plan. There are several other established high-yield savings accounts at a little below 1% APY for now.
  • If you want some upside potential, HM Bradley is still advertising a 3% APY top rate for those that spent the previous quarter saving at least 20% of your direct deposit. It’s likely to drop next quarter starting 10/1, but if you can make a real direct deposit by 10/1 (and not withdrawal more than 80% of it) you’ll earn at least 1% APY in September and gain the possibility of a rate greater than 1% after 10/1.

Short-term guaranteed rates (1 year and under)
A common question is 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 fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 0.75% APY with a $500 minimum deposit. AARP members can get an 8-month CD at 0.85% APY. Ally Bank has a 11-month No Penalty CD at 0.75% APY for all balance tiers. CIT Bank has a 11-month No Penalty CD at 0.35% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • CommunityWide Federal Credit Union has a 12-month CD at 1.00% APY ($1,000 min). Early withdrawal penalty depends on how early you withdraw. Anyone can join this credit union via partner organization ($5 one-time fee).

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 difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund (note the upcoming changes) currently pays an 0.03% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.08%.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 0.82% SEC yield ($3,000 min) and 0.92% 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 0.51% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 0.64% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that there was a sudden, temporary drop in net asset value during the March 2020 market stress.

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. Right now, this section probably isn’t very interesting as T-Bills are yielding close to zero!

  • 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 9/8/2020, a new 4-week T-Bill had the equivalent of 0.10% annualized interest and a 52-week T-Bill had the equivalent of 0.15% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.08% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -0.04% (!) 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 May 2020 and October 2020 will earn a 1.06% 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 2020, 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 nor use any of these anymore.

  • One of the few notable cards left in this category is Mango Money at 6% APY on up to $2,500, along with several hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

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. If you want rates above 2% APY, this is close to the only game in town.

  • Consumers Credit Union Free Rewards Checking (my review) still offers up to 4.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. The Bank of Denver has a Free Kasasa Cash Checking offering 2.50% APY on balances up to $25,000 if you make 12 debit card purchases and at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a savings account that pays 1.50% APY on up to $50k. Thanks to reader Bill for the updated info. Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. 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 to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Greenwood Credit Union has a 5-year certificate at 1.50% APY ($5,000 min), 4-year at 1.00% APY, 3-year at 1.20% APY, and 2-year at 0.90% APY. The early withdrawal penalty for the 5-year is 6 month of interest. Anyone can join this credit union by maintaining $5 in a share savings account.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard has a 5-year at 0.50% APY right now. Be wary of 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 early withdrawal penalties. At this writing, Vanguard has a 10-year at 0.85% APY. Watch out for higher rates from callable CDs from Fidelity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique 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. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. As of 9/9/2020, the 20-year Treasury Bond rate was 1.22%.

All rates were checked as of 9/9/2020.

Filed Under: Banking, Deals & Offers, Investing //
Last updated: September 9, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

MMB Household Money Flowchart (Money Map)

Posted on August 26, 2020 // 4 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

funny flowchart exampleA reader asked me to complete a money map to help visualize how I manage our finances, as per this neat Money Map chain. I wasn’t sure exactly how much detail to add, but the flowchart below is a good representation of how I organize things mentally. Specifics like brokerage or bank choices may change a few years from now, but this overall structure probably won’t.

Income sources. We receive income via business profits, W-2/contractor jobs, and our portfolio. A portion is automatically directly into 401k, HCFSA, DCFSA, and Solo 401k accounts. (We are not eligible for an HSA.) The dividend and interest income is a circular arrow because technically it is generated and then held in the brokerage account. One day, this might include Social Security, rental income, annuity payments, etc.

Long-term investments (5+ years time horizon). Historically, all our income flows directly into our brokerage accounts (most brokers allow direct deposits). I used to invest monthly, but now the business/job income flows are much smaller in semi-retirement. Dividends arrive into the taxable account quarterly, so I now check once every three months to manually reinvest and/or distribute funds as needed. Other than this check-in every 3 months, this tier is “consciously neglected” and designed to grow over time and eventually become self-sustaining. Here are my intermittent portfolio updates.

Short-term investments (1 month to 5 years). This tier is basically my “emergency fund”. In the accumulation stage, it was between 6 months to a year of expenses. Now, I keep five years of expenses as I am much more reliant on unstable portfolio income and there is less stable job income (human capital). Money comes in quarterly from above, and is taken out monthly for household expenses. This tier is “actively-managed” as I aim for higher returns without extra risk to principal (everything is US gov’t/FDIC/NCUA-insured).

  • Liquid savings. Roughly one year of expenses are kept in a 100% liquid savings account. The location can vary but the default is Ally Bank, as they have a good balance of decent rates, solid user interface for interbank transfers, and human customer service. You can also create multiple savings accounts, all with no minimum balance.
  • Certificates of deposit, etc. The other 4 years of expenses are moved roughly into a 5-year CD ladder, adjusted based on rates. Savings bonds and Treasury Bills may also be used if priced competitively. I tried to take advantage of CD rates when they were 3.5 to 4% APY. I write about these banking opportunities regularly and summarize them monthly.
  • Bank bonuses. If CDs rates are not worthwhile, cash may also be optimized via banking promotions. Banks offer you an incentive to try their product, and I accept the offer if the terms are agreeable. I also write about these opportunities here as they come up.

Day-to-day needs. Each month, a “paycheck” transfer goes from savings to checking. Wherever possible, our day-to-day expenses are put on credit cards to trigger the best credit card bonuses. After the float period, it is paid off in full from checking. A larger purchase may require a direct withdrawal from savings account (i.e. estimated tax payments) or one-time transfer to checking (i.e. fix the fridge). I also use Ally Checking, as you can assign one of your savings accounts as a no-fee overdraft backup source.

This design includes a few purposeful features.

  • Savings to 401k are automatic and first, which is critical when that is your major source of savings. It should happen without any energy requirement. No effort, no reminders.
  • Work income is separated from our spending. In the accumulation stage, you want to get bigger paychecks over time but try your best to ignore them when it comes to spending. Instead, all the income gets mixed together and the first place it lands is long-term investments. In semi-retirement, our incomes fluctuate (quite downward in 2020) and we smooth things out with portfolio withdrawals.
  • Portfolio fluctuations are also tempered by a big cash bucket. It’s easier to sleep at night when you have five years of expenses in safe cash readily available. We didn’t need this much cash in the accumulation stage, but when you rely on the stock market for part of your monthly income, it really helps. Is it psychological? Yes.
  • The “fun” hobby stuff is optional. Don’t feel like chasing rates? Just consolidate at one bank. Don’t feel like a different credit card every quarter? Just switch to one.
  • All accounts are joint where possible. That is simply what has worked best for us.

Anyhow, that’s how it works for us. That monthly transfer from savings to checking gives me a rough idea of our monthly and thus annual spending. As long as that number stays a reasonable percentage of our total portfolio, things are happy. We have had a lot of luck, and I don’t want to squander it.

Filed Under: Banking, Credit Cards //
Last updated: August 27, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

HSBC Bank Promo: 3% Cash Bonus on New Deposits, Up to $600 Total

Posted on August 26, 2020 // 5 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Interest rates on liquid savings accounts keep dropping, making bank bonuses more attractive on a relative basis. Opening new accounts are more hassle, so I usually want at least double the interest rates I could get by doing nothing. This $240/$600 HSBC bank bonus satisfies that requirement at over 12% APY. This bonus is not as simple as I’d like, so let’s unpack the details a bit.

Premier Checking (up to $600) bonus details.

  • Open by 9/30/2020. Customers who held an HSBC consumer deposit or investment account from June 29, 2017 through and including June 29, 2020 are not eligible for this offer.
  • 3% cash bonus on qualifying direct deposits, up to $100 per calendar months for 6 months ($600 total). The 6 calendar months begin with the first full calendar month after account opening.
  • Qualifying Direct Deposits are electronic deposits of regular periodic payments (such as salary, pension, Government Benefits or other monthly income) made into your HSBC Premier checking account from third parties at least once per calendar month.
  • Bonus arrives 8 weeks after qualifying activity. To be eligible for the offer, your HSBC Premier checking account must be open without being changed to a product with lower balance requirements, and in good standing at the time of fulfillment.
  • Limit one 3% Promotional Offer or New Consumer Deposit Offer per customer, including all individual and joint accounts — the first line name on the joint account is considered the customer for gift purposes.

HSBC Premier checking has a $50 monthly maintenance fee, unless you have one of the following:

  • Balances of $75,000 in combined U.S. consumer and qualifying commercial U.S. Dollar deposit and investment* accounts; OR
  • Monthly recurring direct deposits totaling at least $5,000 from a third party to an HSBC Premier checking account(s); OR
  • HSBC U.S. residential mortgage loan with an original loan amount of at least $500,000, not an aggregate of multiple mortgages. Home Equity products are not included.

This is not official, but to me the wording suggests that a regularly scheduled monthly ACH transfer pushed from an external bank can count as a direct deposit. The comments under this Doctor of Credit post support this. Obviously, you may want to switch over a payroll if that is an option for you. HSBC doesn’t have any high-interest bank accounts where it would be beneficial to park $75,000 (even if you had this large amount available), so this leaves the best move as making an ACH transfer of $5,000 per month into the account during those 6 months (wait to start until the next new month after opening). This triggers the full bonus and you can then withdraw the funds as you wish, as you have already done the deposits and waived the monthly fee. Limit one per customer, so you and a spouse/partner can each get a bonus, but as usual I would make two individual accounts instead of joint accounts.

The fact that you don’t keep those $5,000 monthly deposits in the account is what I missed initially, and what makes this bonus worth a second look. You can just cycle it: deposit $5k, spend/transfer out $5k, and then deposit $5k again. Now you’re earning a $600 bonus on $5,000 instead of $30,000 or $75,000 in committed cash. Even if you were loose with the math and assumed you had to keep $5,000 in the account for 12 months, a $600 bonus would be 12% annualized. Don’t downgrade your account until get the bonus!

Advance Checking (up to $240) bonus details.

  • Open by 9/30/2020. Customers who held an HSBC consumer deposit or investment account from June 29, 2017 through and including June 29, 2020 are not eligible for this offer.
  • 3% cash bonus on qualifying direct deposits, up to $40 per calendar months for 6 months ($240 total). The 6 calendar months begin with the first full calendar month after account opening.
  • Qualifying Direct Deposits are electronic deposits of regular periodic payments (such as salary, pension, Government Benefits or other monthly income) made into your HSBC Advance checking account from third parties at least once per calendar month.
  • Bonus arrives 8 weeks after qualifying activity. To be eligible for the offer, your HSBC Advance checking account must be open without being changed to a product with lower balance requirements, and in good standing at the time of fulfillment.
  • Limit one 3% Promotional Offer or New Consumer Deposit Offer per customer, including all individual and joint accounts — the first line name on the joint account is considered the customer for gift purposes.

HSBC Advance checking has a $25 monthly maintenance fee, unless you have one of the following:

  • Balances of $5,000 in combined U.S. consumer and qualifying commercial U.S. Dollar deposit and investment* accounts; OR
  • Monthly recurring direct deposits (of any amount) from a third party to an HSBC Advance checking account(s); OR
  • HSBC U.S. residential mortgage loan (of any amount). Home Equity products are not included.

You can either park $5,000 there for about 8 months, or you can make a small direct deposit of any amount each month to waive the monthly fee. However, you will need to deposit at least $1,334 each month to max out the bonus at $40 per month. Even if you were loose with the math and assumed you had to keep $1,500 in the account for 12 months, a $240 bonus would be 16% annualized. Don’t downgrade your account until get the bonus!

Which one? If you have $5,000 that you can cycle, then the $600 Premier bonus is a better use of your time as this bonus will require you to set up multiple transfers and take 8-9 months to complete. If you only have $1,500 to cycle, getting a $240 bonus is still pretty good. Bank bonuses require attention to detail, a tracking/reminder system, and patience. It helps to have that quirk where getting the equivalent of guaranteed 12% annual return on your money is “fun”. 🙂

Thanks to reader Brian M for the tip.

Filed Under: Banking, Deals & Offers, General //
Last updated: August 26, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Best Interest Rates on Cash – August 2020

Posted on August 11, 2020 // 8 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Is it August? The days are all melding together in the MMB household. We’ve also reached the point where anything above 1% APY is worth a second look. Being willing to switch to bank or credit union CDs can still beat out Treasury bonds and/or brokerage cash sweep options that also pay nearly zero.

Here’s my monthly roundup of the best interest rates on cash for August 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and also invest in longer-term CDs (often at lesser-known credit unions) when they yield more than bonds. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 8/11/2020.

High-yield savings accounts
While the huge megabanks make huge profits while paying you 0.01% APY, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • Affirm has the top rate at the moment at 1.30% APY with no minimum balance requirements. I wonder how long this will last, as the rate is high but Affirm also charges really high interest to let folks buy jeans on a payment plan. There are several other established high-yield savings accounts at up to 1% APY for now.
  • Side note: HM Bradley is still advertising 3% APY for those that spent the previous quarter saving at least 20% of your direct deposit. Might be worth a gamble to open now and hope that it somehow stays at 3% APY at the next rate reset on October 1st.

Short-term guaranteed rates (1 year and under)
A common question is 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 fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 0.90% APY with a $500 minimum deposit. AARP members can get an 8-month CD at 1.10% APY. Ally Bank has a 11-month No Penalty CD at 0.75% APY for all balance tiers. CIT Bank has a 11-month No Penalty CD at 0.50% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • CommunityWide Federal Credit Union has a 12-month CD at 1.10% APY ($1,000 min). Early withdrawal penalty depends on how early you withdraw. Anyone can join this credit union via partner organization ($5 one-time fee).

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 difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 0.08% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.10%. 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 0.92% SEC yield ($3,000 min) and 1.02% 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 0.66% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 0.86% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that there was a sudden, temporary drop in net asset value during the March 2020 market stress.

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. Right now, this section probably isn’t very interesting as T-Bills are yielding close to zero!

  • 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 8/11/2020, a new 4-week T-Bill had the equivalent of 0.08% annualized interest and a 52-week T-Bill had the equivalent of 0.15% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.08% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -.01% (yikes!) 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 May 2020 and October 2020 will earn a 1.06% 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 2020, 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 nor use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, along with several hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

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. If you want rates above 2% APY, this is close to the only game in town.

  • Consumers Credit Union Free Rewards Checking (my review) still offers up to 4.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. The Bank of Denver has a Free Kasasa Cash Checking offering 3% APY on balances up to $25,000 if you make 12 debit card purchases and at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a savings account that pays 2% APY on up to $50k. (Effective with the qualification cycle beginning August 20, 2020, the rates on Kasasa Cash and Kasasa Saver are changing to 2.5% APY and 1.5% APY, respectively.) Thanks to reader Bill for the updated info. Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. 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 to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Connexus Credit Union has a 5-year certificate at 1.56% APY ($5,000 min), 4-year at 1.46% APY, 3-year at 1.26% APY, and 2-year at 1.11% APY. Note that the early withdrawal penalty for the 5-year is 365 days of interest. Anyone can join this credit union via partner organization for a one-time $5 fee.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard has a 4-year at 0.35% APY right now. Be wary of 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 early withdrawal penalties. At this writing, there are no available offerings. Watch out for higher rates from callable CDs from Fidelity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique 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. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. As of 8/11/2020, the 20-year Treasury Bond rate was 1.10%.

All rates were checked as of 8/11/2020.

Filed Under: Banking, Deals & Offers, Investing //
Last updated: August 11, 2020
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Marcus Bank AARP 0.10% APY Rate Boost, CD Special, Free AARP Membership

Posted on July 29, 2020 // 4 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

This is a multi-part deal, but you may already have some of these accounts. Marcus is the online banking arm of Goldman Sachs. AARP members are eligible for two member benefits at Marcus:

  • 0.10% APY rate increase to the Online Savings rate for 24 months. As of 1/18/2021, that means 0.60% APY instead of 0.50% APY.
  • Special 8-month No-Penalty CD at 0.55% APY as of 1/18/2021. Their standard No-Penalty CD is 0.45% APY for 7 months.

AARP membership is targeted at those age 50+, but there is no actual age restriction. I was a member in my 30s, as AARP has offered a variety of member benefits that can be quite valuable – insurance discounts, hotel discounts, restaurant discounts, and so on. If only younger folks had such a well-organized association! The standard membership fee is $16/year, but it drops to $12/year if you sign-up for auto-renewal with a credit card on file (you can still cancel at any time).

Swagbucks is a popular points website, and you can currently get 1,500 Swagbucks (worth $15 Amazon gift card)for joining AARP through their site. This essentially offsetts the AARP annual membership fee. If you are a member, log in and search for “AARP”. If you are not a member yet, join via my Swagbucks referral link and earn a $3 referral bonus + an additional $10 bonus if you spend at least $25 through their shopping portal within 30 days of registration. (There are even some money-making offers on Swagbucks like donating $15 to the Sierra Club and getting 4,000 Swagbucks in return worth $40 in Amazon gift cards.)

Taken altogether, you can get the 0.10% APY rate boost, special CD access, and a year of AARP membership (including many other perks) all at zero net cost. Thanks to reader Bill P for the tip.

Filed Under: Banking, Deals & Offers //
Last updated: January 18, 2021
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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US Treasury Yields Lowest In The History of the Republic

Posted on July 21, 2020 // 1 Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Like many folks, I recently enjoyed the excellent musical Hamilton for the first time on Disney+. I’m a bit embarrassed to say it was also very educational (yes, I know its not 100% historically accurate). I never really thought about how precarious and up-for-debate everything was during the beginning of this country. If Hamilton never survived the war or wasn’t as persuasive, would there be a federal Treasury? I feel like the creator of this WSJ Daily Shot chart was also reading about US history – “US Treasury Yields Lowest In The History of the Republic”:

Alexander Hamilton was the first Secretary of the Treasury and is known as the “Father of American Banking”. Here is his Treasury website bio:

Facing a chaotic treasury burdened by the heavy debt of the Revolutionary War, Hamilton’s first interest when he took office was the repayment of the war debt in full. “The debt of the United States … was the price of liberty,” he affirmed, and he then put into effect, during 1790 and 1791, a revenue system based on customs duties and excise taxes. Hamilton’s attack on the debt helped secure the confidence and respect of foreign nations. He introduced plans for the First Bank of the United States, established in 1791 which was designed to be the financial agent of the Treasury Department. The Bank served as a depository for public funds and assisted the Government in its financial transactions. The First Bank issued paper currency, used to pay taxes and debts owed to the Federal Government.

Today, the rates on US Treasury debt are at all-time lows, while the debt-to-GDP ratio is currently higher than any time since World War II (now over 100% of GDP). The projections are from the Congressional Budget Office, made even before the events of 2020.

I will be the first to admit that I don’t understand macroeconomics. At the same time, I wish that the “experts” would admit when they don’t really know that will happen in the future either.

Filed Under: Banking, Investing //
Last updated: July 21, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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Bask Bank Review: Earn American Airlines Miles As Interest (5,000 Mile Referral Bonus)

Posted on July 6, 2020 // 7 Comments
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Updated with my own experience and new referral bonus. Bask Bank is a FDIC-insured savings account that pays you American Airlines (AA) miles instead of cash interest. Every $1 earns 1 mile a year. For example, $1,000 kept for a year would earn 1,000 AA miles at the end of the year. If you kept $50,000 there for a year, you would earn 50,000 AA miles at the end of a year. There is no minimum balance and no monthly fees. I’ve updated this review after opening an account.

Bask Bank is part of Texas Capital Bank (FDIC Certificate #34383), which also runs BankDirect. BankDirect has been giving out American Airlines miles for many years on their checking account, but with different requirements and a steep monthly fee. Note that they are all the same bank in regards to the $250,000 FDIC insurance limits per depositor type. Bask Bank routing number is 111026177.

Account opening process. Opening an account was done all online with no issues, with no physical paperwork to send in. They state there is no hard credit check upon opening, and there was none upon my own opening. I received all my promised points (past bonus and monthly interest) on time and without issue. Note: They do not currently offer joint accounts.

Value calculations. If you valued American Airlines miles at 1 cent per mile, then this account would earn you the equivalent of 1% APY. ($10,000 a year = 10,000 AA miles = $100 value.) Given that other online savings accounts also earn about 1% APY nowadays, this has become a closer call after you consider the tax consequences…

1099-INT details. If you get miles instead of cash, what happens at tax time? Bask Bank and BankDirect has stated that they plan to issue 1099-INT for 2020 interest earned based on a valuation of 0.42 cents per mile. This can be found deep in their disclosures:

Since you are Awarded Miles based on the average collected balance in your Account each month instead of interest, Bask Bank calculates an interest equivalent based on a good faith estimate of the value of the miles. Your interest rate and annual percentage yield may change based on a change in either the Miles Award Rate or the estimated value. Miles are currently valued at 0.42 cents per mile, the equivalent of 0.42% annual percentage yield.

So if you held $10,000 for all of 2020 and earned $10,000 miles, current your 1099-INT will show $42 in interest paid. However, this is subject to change and I don’t really like that sort of uncertainty. It is unlikely but still possible that they could change this number and it would be a hassle to dispute such a valuation.

Useful for keeping your AA miles active. Airline miles are useful, but also subject to rampant inflation. Since AA miles are worth less every year, I do not plan on using this as my main savings account. However, the ability to keep about $15 in there and earn at least 1 mile per month to prevent my existing American miles from expiring, that could be useful. If I need a certain amount of American Airlines to reach an award, this may be a backup option as well. I have a large amount of AA miles, so this account gives me peace of mind that they won’t suddenly expire when I’m not paying attention.

New account referral bonus. Bask Bank now runs a refer-a-friend program where if the person referred opens an account by 9/30/2020, deposits at least $10,000, and keeps it there for 90 days, they will earn 5,000 AAdvantage® bonus miles on top of the usual interest. The referrer will also then receive 5,000 miles. Here is my Bask Bank referral link, thanks if you use it. After you open the account, you can also refer up to 5 friends yourself:

If you again value an AA mile at 1 cent a mile, then the bonus is worth $50. Earning $50 for keeping $10,000 there for 90 days is the equivalent of a bonus APY of 2% for those 90 days. So in total, you might get the cash equivalent of 3% APY over those initial 90 days with the referral bonus if you use that 1 cent per mile valuation.

Bottom line. Bask Bank is an online savings account that pays you American Airlines (AA) miles instead of cash interest. It won’t be a great fit for everyone, but may be interesting to those that can maximize the value of an American Airlines mile. You may also like the ability to keep all your AA miles from expiring by keeping a small amount of cash at the bank.

Filed Under: Banking, Deals & Offers //
Last updated: August 12, 2020
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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