Fidelity Solo FidFolios: DIY Custom Direct Indexing (Similar to M1 Finance)

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Fidelity just announced a new feature called Fidelity Solo FidFolios. You can make a custom index with up to 50 individual stocks, or a custom asset allocation portfolio using ETFs. You can then buy into your custom portfolio all a once using flat dollar amounts and Fidelity will juggle the fractional shares. For example, your $50 purchase could be split into 50 different individual companies.

“Now more than ever, investors want the peace of mind of trading, monitoring, and rebalancing custom stock portfolios in a simple way,” said Robert Mascialino, head of Fidelity’s retail brokerage business. “With the ability to align to a specific theme or individual values, Fidelity Solo FidFoliosSM helps leverage the power of direct indexing to build a customized portfolio while simplifying how investors manage what they own.”

Costs. Flat $4.99 per month, with a 90-day free trial. No stock commissions. Works within your usual Fidelity brokerage or IRA account. If you stop paying the fee, you just end up holding those individuals stocks and/or ETFs.

Note that this is different from their Fidelity Managed FidFolios, which is professionally managed by Fidelity and more about using tax-loss harvesting to gain a slight after-tax advantage. The cost for Managed Fidfolios is 0.40% annual management fee with a $5,000 initial minimum.

This may sound familiar, as it is pretty much what the start-up M1 Finance first introduced years ago, with the important distinction that M1 Finance is free (so far). Motif Investing also ran something similar before they shut down and their technology was acquired by Schwab.

I believe that a “custom robo-advisor” feature is going to be widespread in the future. Many DIY folks would like the ability to make your own customized all-in-one Target Retirement Fund. It’s really not that technically difficult to allow everyone to create their own custom glide path. I explored this with a small investment in M1, but in practice I have found it trickier to implement if you have to rebalance across various 401k plans, IRAs, and taxable brokerage accounts. Still, I’d rather use M1 Finance or this Solo Fidfolio over another robo-advisor that changes their model portfolios every few years to match up with whatever is currently trendy.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Axos Invest Brokerage: $150 Bonus with $1,000 Deposit

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Axos is another financial app that combines banking, investing, and borrowing services. Right now, they are offering a $150 bonus when you open a new Axos Invest brokerage account, fund it with $1,000, and keep it there for 90 days. You can choose Self-Directed Trading or their Managed Portfolio (robo-advisor) option, but the Self-Directed option has no advisory fees and offers $0 stock and ETF trades. Options cost $1 per contract.

Transfer fee reimbursement. If you move $50,000+ of assets over, they will reimburse transfer fees up to $300.

Relatively straightforward promo with a solid return on cash locked up. Keep in mind that if you buy something and want to transfer it out later, you may have to pay an $75 outgoing transfer fee (see their fee schedule). If I want to avoid that, I usually either stay in cash, plan an exit to another broker that will reimburse that fee, or buy something that I plan on selling and just withdrawing cash without fees.

* Valid for one new Axos Invest accounts per person, and only open to U.S. residents. Current and former Axos Invest account holders who closed accounts within the past 90 days are not eligible. This offer is non-transferrable. Other restrictions may apply. This offer is not valid anywhere Axos Invest is not authorized to offer services. An Axos Invest Managed Portfolio or Self-Directed Trading application must be submitted before 11:59 p.m. PT on 6/30/2022 to qualify. You must open each new account and have qualifying direct deposit(s) that total at least $1,000.00 within 45 days during the first three (3) calendar months your account is open, including the month in which your account was opened. Direct deposit funds must be new to bank from a third-party source (not originated from another Axos Bank brand account) to receive bonus credit. All eligible awards will be delivered to your account or email address within 30 days following the 90-day waiting period. Terms and conditions subject to change without notice. New account holders are limited to opening one taxable Managed Portfolio or one taxable Self-Directed Trading account. The eligible award will be delivered into the first account opened. Subsequent market fluctuations and/or trading losses do not impact qualification.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Schwab Hidden Fees: $187 Million Penalty For Intelligent Portfolios Robo-Advisor

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Schwab has agreed to pay a $187 million SEC settlement due to being sneaky about the fees charged by their robo-advisor product, Schwab Intelligent Portfolios (SIP). Schwab used “free” but quietly forced its own customers to hold a lot of cash in an high-cost form where they can skim off fees (and you get paid less interest). It was a relatively open secret in the financial planning industry, as noted in my own Intelligent Portfolios review:

Schwab makes a ton of money on your idle cash, and it is NOT an accident that they force you to own cash in their automated portfolios.

However, the details of this SEC settlement show that their behavior was even worse than I initially thought. As explained by Matt Levine in Money Stuff, Schwab literally decided how much profit they wanted first, and then worked their model asset allocations around that number. The technical version:

Each of SIP’s model portfolios held between 6% and 29.4% of clients’ assets in cash. The amount of cash that each SIP model portfolio contained was pre-set so that Respondents’ affiliate bank would earn at least a minimum amount of revenue from the spread on the cash by loaning out the money. …

In order to offer SIP without charging an advisory fee, Schwab management decided that the SIP portfolios would collectively hold an average of at least 12.5% of their assets in cash. To meet that goal, management set the exact amount of cash in each of SIP’s model portfolios, with the most aggressive portfolio containing 6% cash and the most conservative portfolio 29.4%, based in large part on its analysis that Schwab Bank would make a minimum amount of revenue at these levels. Management then provided these pre-set cash allocations to CSIA. In building the SIP model portfolios, CSIA treated the cash allocations provided by management as constraints and did not alter or adjust the cash allocations in any way. …

On February 18, 2015, weeks before the SIP launch, two articles were published in the media that were critical of SIP, claiming that the drag from the high cash allocations was a hidden cost of the program. In reaction to these articles, Schwab management directed that the SWIA ADV brochure be re-written, and that a public relations campaign be launched to explain the SIP cash allocations. …

While the ADV brochures disclosed that Schwab Bank earned income from the cash allocation for each investment strategy, SWIA’s and CSIA’s ADV brochures stated that the cash allocations in the SIP portfolios were “set based on a disciplined portfolio construction methodology designed to balance performance with risk management appropriate for a client’s goal, investing time frame, and personal risk tolerance, just as with other Schwab managed products.” This was false and misleading because the cash allocations were actually pre-set in order to reach minimum revenue targets for the Respondents.

Here it is more accurately summarized in this Reuters quote:

“Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients’ returns when in reality it was decided by how much money the company wanted to make,” SEC enforcement chief Gurbir Grewal said.

Here’s what Schwab says in their press release:

We are proud to have built a product that allows investors to elect not to pay an advisory fee in return for allowing us to hold a portion of the proceeds in cash, and we do not hide the fact that our firm generates revenue for the services we provide.

Really, you don’t hide the fact? Let’s look at your product page now as of 6/15/2022. This is what you see without clicking further:

We believe cash is a key component of an investment portfolio. Based on your risk profile, a portion of your portfolio is placed in an FDIC-insured deposit at Schwab Bank. Some cash alternatives outside of the program pay a higher yield.

What else is not mentioned on their product page? The actual interest rate paid. The APY is not mentioned anywhere on that page, even through a link or fine print. You must go searching for this link, where you will find that SIP actually holds special “Sweep Shares” of the Schwab Government Money Fund (SWGXX) with a annual expense ratio of 0.44% and SEC yield of 0.38% as of 6/15/22. In comparison, Vanguard’s default cash sweep is the Vanguard Federal Money Market Fund (VMFXX) with a net expense ratio of 0.11% and SEC yield of 0.76% as of 6/15/22.

If you click further, you find their new fine print:

Assume a $100,000 account with a 10% Cash Allocation ($10,000), which would be a moderate—aggressive investment portfolio allocation. Using market interest rates from the first quarter of 2022, Schwab Bank earned about 1.03% on an annual basis on the cash it invested net of what it paid to clients in the Program. Schwab Bank would have received about $103 ($10,000 x 1.03%) on that cash deposit, annualized, which equates to 0.103% or 10.3 basis points ($103/$100,000) of the total client investment of $100,000.

However, the true cost to investors is not just the fees that Scwhab gets. Cash is not necessarily ideal for long-term portfolios. By dictating cash, you ignore other higher-yielding and arguably more appropriate options like their own Schwab Short-Term U.S. Treasury ETF (SCHO, 0.04% ER, 2.60% SEC yield) and Schwab Short-Term Bond Index Fund (SWSBX, 0.06% ER, 2.98% SEC yield).

Schwab customers are at this very moment, losing significant money from their high-cost cash drag instead of a low-cost, high-quality money market and/or short-term bond fund. Schwab customers should note that this quiet profit via cash holding motive runs throughout the company. The Schwab Bank “High Yield” Investor Savings account pays 0.05% APY. Uninvested bank sweep cash in your Schwab brokerage and retirement accounts pays a measly 0.01% APY.

I would bet that if you did a poll of all Schwab IP customers and asked them about it, a majority would have no idea about this arrangement.

Bottom line. After reading the details of this SEC settlement, the fact that Schwab put profit first and the actual design of the product second is the most offensive. I’d much rather you sell me a great product at a fair price. Schwab’s reputation is now lower in my mind. They have some good products, but I would not recommend Schwab Intelligent Portfolios (or any Schwab managed product based on their behavior here) for my family or friends.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Chart: Every S&P 500 Bear and Bull Market in History

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Even though I don’t check my retirement account balances daily (or weekly, or often monthly) it can still be nearly impossible to tune out all the market noise. I was promptly notified via e-mail press release that the S&P 500 index officially reached “Bear Market” status today 6/13/2022. A bear market is defined as a 20% drop from previous high, ending when the index reaches a low and subsequently rises by 20%.

The email also included this handy list of every bear market in the history of the S&P 500 index (since 1928). Credit to S&P Dow Jones Indices:

Takeaway: You should always be prepared for a drop of 50% in your stock holdings. Enduring such uncomfortable volatility is the price of investing in stocks, and if you don’t pay it, you don’t get the full returns.

I’ve yet to find anyone with a clear way to avoid these swings. Beyond buy-and-hold, perhaps the only thing is to wait only for the “fat pitches”, which are rare and far between. Even then, will you have the guts to swing? This is why I think of my primary portfolio as the “Humble Portfolio”.

Here is list of every bull market in history. A bull market is defined as 20% rise from the previous low, ending when the index reaches a high and subsequently drops by 20%.

Takeaway: The bull markets more than make up for the bear markets over the long run. At some point, you will be reminded that in order to make up for a 50% drop, stocks would have to go up by 100% just to break even again. That’s sounds like a lot, but in fact that has happened repeatedly and then some. You can see in the chart that this most recent bull market was a +400% change, and that doesn’t even include dividends.

Every one needs to find a good balance through education and experience where they can hold the risky stuff through the bad times, while also be happy holding the boring stuff through the “but my neighbor got rich daytrading crpyto” times. We are currently going through another period of heightened uncertainty. How do you feel about your portfolio today?

“History doesn’t repeat itself but it often rhymes.” – attributed to Mark Twain

Photo credit: Unsplash

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Webull Broker: New Account 6 Free Stocks, $600 Account Transfer Promotion

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Updated 6 free stocks for new account, $600 transfer promos. Webull is a brokerage app (PC and web version also available) that has $0 stock trades, $0 options trades with $0 per contract fees, free real-time quotes, and no minimum balance requirement. (Fidelity, Schwab, E-Trade, and TD Ameritrade all still charge $0.65 per contract.)

Compared to Robinhood, Webull is more of a full-featured traditional brokerage shrunk down into an app. Robinhood has a sleeker minimalist feel, while Webull has a ton of options for real-time stock quotes, technical indicators, charting, etc.

New account bonus details. Right now, WeBull is offering new accounts up to 6 free shares of stock:

  • Open an account with Webull and get 2 free stocks valued between $3 and up to $300 each.
  • Link your bank and deposit any amount to receive 4 additional free stocks valued between $7 and up to $3,000 each.

Here is my Webull 6 free stocks referral link. Let’s be upfront and realistic here. The theoretical max total might be $12,600 but this is essentially a scratch-off lottery ticket where most people will get the minimum payout in the $34 range, but you also have a small shot at various larger prizes. The referrer gets some free shares as well, and I have received shares of TEVA, SNAP, SBUX, VG, and even one AAPL (pre-split, now worth $568) so some folks do get lucky. Thanks if you use it! After you get the new user bonus, you can refer other people as well.

Here are the full odds for the initial deposit bonus:

$7 to $30 value, odds are ~1:1.02
$31 to $100 value, odds are ~1:52.63
$101 to $1,000 value, odds are ~1:1111.11
$1,000 to $1,600 value, odds are ~1:10,000

Once you receive the stock and it settles, you can just sell it if you don’t want to keep it. Webull is a legit SIPC-insured broker, and the required information is the same as other brokers (name, address, SSN, work questions, investing experience questions, etc). 1

The nice thing about this bonus is that it doesn’t tie up any cash. You could open and fund with $1 and get your free scratch-offs.

Account transfer bonus details (both new and existing customers). WeBull is also running an account transfer promo, where if you transfer assets from another brokerage firm over to WeBull, they will offer the following bonus structure:

  • Transfer fee reimbursement up to $75 with ALL transfers of $2,000+ in new assets
  • $80 of fractional AAPL shares with $5,000 to $24,999 in new assets
  • $200 of fractional AAPL shares with $25,000 to $249,999 in new assets
  • $600 of fractional AAPL shares with $250,000+ in new assets

Fine print on “Net Incoming Account Value”:

Net Incoming Account Value = Only transfers added to your account between 6/1/2022 12:00AM ET – 6/30/2022 11:59PM ET will be considered as your net incoming account value. If you were to withdraw or transfer out any amount between 6/1/2022 12:00AM ET –8/29/2022 11:59PM ET, it will be deducted from your total net incoming account value. The net incoming account value you have in your account on 8/30/2022 12:00AM ET will determine which tier’s reward you will receive.

This promotion is open to new and existing customers (grab the new account bonus above first, then activate this promo). However, note that if you have already transferred an account over to WeBull in the past, you are not eligible to participate in this promotion.

In comparison with historical brokerage transfer promos, these are pretty good numbers for the respective asset sizes. (Again, just sell the Apple shares if you don’t want to keep them.) I have done multiple transfer promos and as long as your broker has your cost basis correctly stored (download a copy for yourself beforehand just in case) and you don’t hold certain mutual funds (if so, just do a partial transfer instead), the transfers have all gone smoothly via the ACAT system. Works very well for buy-and-hold type investors of individual stocks and ETFs.

Bottom line. Webull is a brokerage app with free stock trades and free options trading with no contract fees. The feel is more of a full-featured traditional brokerage account shrunk into your smartphone. New users can earn free shares of stock and you can earn an additional bonus for transferring over assets from another brokerage firm.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Stacking VTI or VOO: Get Excited About S&P 500 and US Total Market Stock ETFs

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A satoshi, or “sat” for short, is the smallest unit of the cryptocurrency bitcoin. “Stacking Sats” is a popular term for gradually accumulating bitcoin by purchasing small amounts of bitcoin at a time. (100 million sats = 1 bitcoin.) The idea is that you should be excited about adding any amount to your stack, focusing on that forward progress instead of the current market price.

If only it would be as trendy for folks to “stack VOO” or “stack VTI”. A low-cost S&P 500 or US Total Market index ETF is a tax-efficient way to build up your ownership of a share of excellent American businesses. Unfortunately, there is always something shinier next to this vanilla product. Factor ETFs, themed ETFs, sector ETFs, and so on. John Rekenthaler of Morningstar has an interesting series of articles comparing the long-term returns of various alternatives to Vanguard index funds. See Vanguard’s Other Index-Fund Invention.

Even way back in 1992, Vanguard started offering “Value” and “Growth” index funds, essentially splitting the US stock market into two halves based on price/book ratios. Essentially, these were the first variation on the plain S&P 500 index fund. You might think one was better than other. (Most academics would have guessed Value would win.) So what happened over the next 20 years? Not very much! (Plus Growth won slightly.)

Of course, I would not be surprised at all to see Value squeak out a slight win over Growth after another 10 or 20 years. One is always going to be winning slightly, but take a step back and you can argue they are effectively tied. Why not just own the S&P 500 index fund and get the average?

(Quick reminder: The Rule of 72 says that 10% annualized means your money will double every 7.2 years. That means $10,000 will have doubled three times in about 21 years. $10k doubled to $20k, then doubled to $40k, then doubled to $80k!)

What if you rebalanced regularly between Value and Growth? If you rebalanced between the two funds every single month, your annual return would have increased by 0.10%. If you rebalanced between the two funds only once every 5 years, your annual return would have increased by 0.28%. But really, who rebalances only once every 5 years? In view, these numbers are still low enough to be in the noise range, and the extra return is not dependable.

What if you bought a low-cost actively-managed fund from Vanguard instead? Due much to Vanguard’s extremely low costs on their active funds, some actively-managed funds did do better, but others did worse. If you chose to buy the funds with the highest trailing returns, or the best Sharpe ratios, or the most popular funds (most assets), all that Ivy League brainpower and decades of investing experience would have still lagged behind a simple index fund portfolio. Only with the power to see the future would you have picked the index-beating funds.

As the saying goes, don’t let the pursuit of perfect be the enemy of the good. As someone sitting on a relatively big pile of VTI after 15+ years of stacking it share by share, I am certainly relieved that I didn’t get too distracted by all of the other shiny objects out there. Instead of remembering your highest portfolio value ever from your monthly statement, remember the number of shares of VTI or VOO that you own. Every $200 saved = 1 share of VTI. But in the end, as long as you get excited about stacking something of high-quality with long-term productive value, you’ll likely end up in a good place.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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 – June 2022 Update

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Here’s my monthly roundup of the best interest rates on cash as of June 2022, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or portfolio stability, and there are often lesser-known opportunities available to individual investors. 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 6/6/2022.

Significant changes since last month: Rates moving up a little. 4% APY on up to $6,000 for liquid savings at Current with no direct deposit requirement. Liquid savings 1.25% APY w/ no cap + up $325 bonuses on SoFi w/ direct deposit. Brokered CDs and US Treasury bonds now slightly above 3% for 5 years. 1-year CDs and Treasuries slightly over 2%. 9.62% Savings I Bonds still available if you haven’t done it yet.

Fintech accounts
Available only to individual investors, fintech companies often pay higher-than-market rates in order to achieve fast short-term growth (often using venture capital). “Fintech” is usually a software layer on top of a partner bank’s FDIC insurance.

  • 4% APY on $6,000. Current offers 4% APY on up to $2,000 each on three savings pods. No direct deposit required. $50 referral bonus for new members with $200+ direct deposit with promo code JONATHAP228. Please see my Current app review for details.
  • 3% APY on up to $100,000, but requires direct deposit and credit card spend. HM Bradley pays up to 3% APY if you open both a checking and credit card with them, and maintain $1,500 in total direct deposit each month and make $100 in credit card purchases each month. Please see my updated HM Bradley review for details.
  • 3% APY on 10% of direct deposits + 1% APY on $25,000. One Finance lets you earn 3% APY on “auto-save” deposits (up to 10% of your direct deposit, up to $1,000 per month). Separately, they also pay 1% APY on up to another $25,000 with direct deposit. New customer $50 bonus via referral. See my One Finance review.
  • 3% APY on up to $15,000, requires direct deposit and credit card transactions. Porte requires a one-time direct deposit of $1,000+ to open a savings account. Porte then requires $3,000 in direct deposits and 15 debit card purchases per quarter (average $1,000 direct deposit and 5 debit purchases per month) to receive 3% APY on up to $15,000. New customer bonus via referral. See my Porte review.

High-yield savings accounts
Since the huge megabanks pay essentially no interest, I think every should have a separate, no-fee online savings account to accompany 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.

  • SoFi is now offering 1.25% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit each month of any amount. Convenient if you already have a relationship with them. SoFi now has their own bank charter so no longer a fintech by my definition. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • Bask Bank is up to 1.25% APY with no minimum balance requirements.
  • TAB Bank is up to 1.26% APY with no minimum balance requirements.
  • There are several other established high-yield savings accounts at closer to 0.80% APY. Marcus by Goldman Sachs is on that list, and if you open a new account with a Marcus referral link (that’s mine), they will give 0.50% extra for 3 months, or 1.35% APY for your first 3 months (add 0.10% with AARP membership). You can then extend this by referring others.

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 (plan to buy a house soon, 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. CFG Bank has a 13-month No Penalty CD at 1.22% APY with a $500 minimum deposit. Ally Bank has a 11-month No Penalty CD at 0.85% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 0.90% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Connexus Credit Union has a 12-month certificate at 2.26% APY Note that the early withdrawal penalty is 90 days of interest. Anyone can join this credit union via partner organization for a one-time $5 fee.

Money market mutual funds + Ultra-short bond ETFs
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). Unfortunately, money market fund rates are very low across the board right now. Ultra-short bond funds are another possible alternative, but they are NOT FDIC-insured and may experience short-term losses at times. These numbers are just for reference, not a recommendation.

  • The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.71%.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 1.91% SEC yield ($3,000 min) and 2.01% SEC Yield ($50,000 min). The average duration is ~1 year, so your principal may vary a little bit.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.80% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.61% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. 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 6/6/2022, a new 4-week T-Bill had the equivalent of 0.88% annualized interest and a 52-week T-Bill had the equivalent of 2.20% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.67% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 0.45% 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. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds 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 2022 and October 2022 will earn a 9.62% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-October 2022, 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 below 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 severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). 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, as I feel the work required and the fees charged if you mess up exceeds any small potential benefit.

  • Mango Money pays 6% APY on up to $2,500, if you manage to jump through several hoops. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.
  • NetSpend Prepaid pays 5% APY on up to $1,000 but be warned that there is also a $5.95 monthly maintenance fee if you don’t maintain regular monthly activity.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • Quontic Bank is offering 1.10% APY on all balances. May be useful for those with high balances. You need to make 10 debit card point of sale transactions of $10 or more per statement cycle required to earn this rate.
  • The Bank of Denver pays 2.00% APY on up to $10,000 if you make 12 debit card purchases of $5+ each, receive only online statements, and make at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $25k. Thanks to reader Bill for the updated info.
  • Presidential Bank pays 2.25% APY on balances between $500 and up to $25,000, if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Evansville Teachers Federal Credit Union pays 3.30% APY on up to $20,000. You’ll need at least 15 debit transactions and other requirements every month.
  • Lake Michigan Credit Union pays 3.00% APY on up to $15,000. You’ll need at least 10 debit transactions and other requirements every month.
  • (I no longer recommend this credit union myself, but the rate is still good.) Lafayette Federal Credit Union is offering 2.02% APY on balances up to $25,000 with a $500 minimum monthly direct deposit to their checking account. No debit transaction requirement. They are also offering new members a $100 bonus with certain requirements. Anyone can join this credit union via partner organization ($10 one-time fee).
  • 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 3.21% APY ($5,000 min), 4-year at 3.11% APY, 3-year at 3.01% APY, and 2-year at 2.86% 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. Right now, I see a 5-year CD at 3.30% APY. 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. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CD at 3.85% APY vs. 3.04% for a 10-year Treasury. 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 6/6/2022, the 20-year Treasury Bond rate was 3.41%.

All rates were checked as of 6/6/2022.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Don’t Anchor Yourself To Your Portfolio High-Water Mark

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Inside various financial forums, I am seeing the “anyone else worried?” 😓 posts as most portfolios are down double-digits. For a retiree with a $1 million portfolio, seeing $100,000 or $200,000 of value evaporate is understandably stressful. However, much of this is because you are comparing to your portfolio’s all-time high, or high-water mark, which is a relatively arbitrary number. Just because at one moment in time, there were a few willing buyers of your assets for a given price doesn’t mean you should anchor yourself to that number.

Step back and have some perspective. I would offer up this historical performance chart of the Vanguard Target Retirement 2050 Fund (VFIFX) as evidence that things really aren’t that bad if you take a step back. This chart tracks the growth of a $10,000 investment place in 2012 in this all-in-one Target Date Fund. Taken 5/30/22.

  • As of 5/30/22, the 10-year trailing return for VFIFX is 10.28% annualized even after the recent drop. Can you reasonably ask for more than 10% average annual returns for a decade?
  • If you invested in January 2020, right before the COVID pandemic started, you are still up 18.7% if you held through today.
  • If you invested funds anytime between January and August 2020, those funds are up even more than that!
  • The last time your investment value was this low was… March 2021. That’s it.

Things might get much worse, things might get better and never look back, I don’t know the future. This is another reason why I no longer check my portfolio balance on a daily basis. How can I say that, when his whole blog was once based on the idea that I would share my net worth every month?! Back then my savings rate was much more significant than my portfolio performance. Side hustle money made a big difference and I felt in control. These days, the opposite is true. The portfolio movement overwhelms our savings contributions.

Track something better. If you keep staring at that portfolio balance, you’ll get overly excited when you hit an arbitrary number like $50,000 and then get really depressed if it drops below and stays there for a while. You need to track something better. If you are still in the accumulation phase, your metric for success could be:

  • Your 401(k) contribution rate. A reasonable target might be 15% or higher.
  • Your overall savings rate. Heck, if you are tracking this number at all, you are probably way ahead of the game.
  • Your side hustle monthly total. If your day job has a fixed salary, you might focus on the side income instead.
  • Your portfolio’s 2-year trailing average or similar. Anything that has a longer time horizon and offers more perspective.

If you are in the spending phase, you could track something like your spending rate as a percentage of portfolio, and if that’s still reasonable then go back to enjoying your life. You may also explore a dynamic spending strategy.

Bottom line. Your quoted portfolio value in November or December 2021 doesn’t matter. If you tell yourself stuff like “I’ve lost $XX,000” since December 2021, you are experiencing the anchoring cognitive bias.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Investment Portfolio First Aid for Older Relative, Part 1: Assess The Situation

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Although I enjoy managing my own investments, I’ve generally avoided managing other people’s money. That always felt like such an important responsibility to take on. Below is the real investment portfolio of an older family member (over 75) that is professionally managed by an large “brand name” financial firm. Understandably, the recent market volatility has hurt the balance and there is some concern, so I took a look.

Before opening up the statement, I joked to myself “There better not be that ARK ETF in there!”…. and there it was. Down 66%! 😱 Deep breaths! My thoughts went to the four basic steps to performing emergency first aid:

  1. Assess the situation
  2. Plan for interventions
  3. Implement first aid
  4. Evaluate the situation.

Here are some anonymized screenshots (with permission) that show holdings, balances, performance, and rough asset allocation breakdown.

Why in the world does this portfolio only have 10% in bonds, at least according to the pie chart above? What exactly are those “alternatives”? I created a Google spreadsheet and started collecting more data from Morningstar:

The Goldman Sachs “multistrategy” fund turns out to consist of roughly 50% net stocks and 50% net cash/bonds. So the overall asset allocation is about 80% stocks and 20% bonds. Perhaps they confused the “age in bonds” rule of thumb with “age in stocks”? 🤔

I don’t know all the details and communications that took place before the creation and implementation of this portfolio, but my first impression is not positive. In addition to an overly-aggressive asset allocation, I see a mishmash of high-cost mutual funds. There isn’t a single penny in a low-cost index fund as a core holding! I don’t believe that you need 15 different funds to be “diversified”. While a relatively small holding, the fact that ARK ETF holdings are down 67% also means they decided to buy in after all of the initial outperformance. In other words, performance chasing.

Speaking of performance, the portfolio is down 25% from the initial purchase amounts. That’s seems like a lot for someone in their 70s, and we haven’t even technically hit a bear market in the S&P 500 yet.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

2022 Berkshire Hathaway Annual Shareholder Meeting Video, Transcript, and Notes

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Here are my notes on the 2022 Berkshire Hathaway Annual Shareholder Meeting. This year, CNBC has the rights to record and host the full video and transcripts (morning session, afternoon session) and they did a nice job with syncing the text and sound. I enjoyed listening to it like a podcast first and then reading through the text a second time around. There are many financial media articles with highlights, but here are my personal takeaways and notes.

Berkshire Hathaway is their life’s work and legacy. It’s fascinating to see how they have tried their best to build it to last forever. I recently listened to an outdoor podcast called Dirtbag Diaries where a 78-year-old man suffering from late-stage Parkinson’s disease still completed a 10-day whitewater rafting trip in the Canadian wilderness. Some folks just have more life energy than life time left, and wring out every last bit. Inspiring.

Warren Buffett is 91 and Charlie Munger is 98. These guys could be relaxing. They know the end is near, but they still have energy and are doing what they love. They built Berkshire bit by bit and the shareholders that they will leave behind are close family and friends that trust them. BRK is their legacy, and they have carefully crafted it to keep growing for those shareholders long past their lifetimes.

But most — a great many of them just say, you know, “We’ve saved this money. And we trust you and Charlie.” And that’s a great motivator, this trust.

“And, you know, take care of it and I’m not going to learn accounting and try to read all those statements or anything of the sort.”

You know, if I went broke, it wouldn’t really make any difference. It’d keep doing what I do. I’d figure out a way to read a paper and watch a little TV (Laughter) and think about things and talk to Charlie.

But the idea of losing, permanently, other people’s money — people who trust us — really, really — that’s just a future I don’t want to have.

So, the one thing I can tell you about Berkshire — although I can’t predict what our earnings will be, and I can’t predict what the stock will do, and I can’t — we don’t know. We don’t know what the economy will do and all of that sort of thing.

But we do know that we wake up every morning and we want to be safer, in terms of your eventual investment.

Now, whether you make the most money or anything, we do not want you to get a terrible result because you’ve decided to become our partner. And that’s a pledge you can live by.

They aren’t done yet, either. As long as they are able, they will keep adding pieces. They spent $40 billion is just three weeks, and are probably still buying stuff as I type this. The media usually only focuses their attention on certain purchases, but you can track their 13F filings to see exactly they bought and sold. Sites like Dataroma parse them for you, but if you plan on copycat investing be warned that the data is delayed and also Buffett is not always buy and hold forever. He’s not always right, and when Buffett realizes this, he can also sell quickly. Being late after he buys and late after he sells can be a very bad combo.

Berkshire Hathaway share repurchase timing gives some hints. They also bought back a few more BRK shares in January to March 2022 ($3 billion), but none in April 2022 once the price rose. This should give you a hint as to what Buffett thinks is a “good deal” on BRK shares. He wouldn’t buy back shares unless they were safely below his estimate of intrinsic value. You may see those 2021 and early 2022 prices again…

Cash is like oxygen. We should all keep adequate cash reserves in 100% liquid and safe places. Home equity lines of credit can (and have been) frozen quickly. Credit card limits can be reduced. We should know by now that crazy stuff happens quickly.

When 2008 and 2009 — the national panic came along — we didn’t own anybody’s commercial paper. You know, we didn’t have money market funds. We have Treasury bills. And, as I may get into it a little later, I’ll explain to you why.

We would — we believe in having cash.

And there have been a few times in history, and there will be more times in history, where if you don’t have it, you know, you don’t get to play the next day. I mean, it’s just —

It’s like oxygen, you know? It’s there all the time. But if it disappears for a few minutes, it’s all over.

Gambling and investing are getting mixed up yet again. Sports gambling is growing. Short-dated options trading is growing. Crypto has many shady pockets. Remember that casino owners make reliable profits while feeding the gamblers with hope. Which side do you want to be on? Buffett noticed this as a 21-year-old newlywed visitor to Las Vegas:

They’d gone to great lengths to come out to do something that was mathematically unintelligent, and they knew it was unintelligent.

And, I mean, they couldn’t do it fast enough, in terms of rolling the dice, you know, and trying to determine whether they were hot or whatever they may be.

And I looked around at that group. And everybody there knew that they were doing something that was mathematically dumb, and they’d come thousands of miles to do it, and they were —

And I said to my wife, I said, you know, I’m going to get rich.

How to beat inflation? Invest in your own human capital.

But the best thing you can do is to be exceptionally good at something. If you’re the best doctor in town, if you’re the best lawyer in town, if you’re the best whatever it may be, no matter whether people are paying you with a zillion dollars or paying with — they’re going to give you some of what they produce in exchange for what you deliver.

And if you’re the one they pick out to do any particular activity, sing, or play baseball, or be their lawyer, whatever it may be, whatever abilities you have can’t be taken away from you, they can’t actually be inflated away from you.

Somebody else will give you some of the wheat they produce, or the cotton, or whatever it may be, and they will trade you for the skill you have.

So, the best investment by far is anything that develops yourself. And, again, it’s not taxed. (Applause) So that’s what I would do.

Find the intersection of something that interests you, something you have a talent for, and something that pays the bills.

CHARLIE MUNGER: Well — if you stop to think about it, there are two things that neither one of us has ever succeeded at: One, we’ve never succeeded at anything that didn’t interest us, right?

WARREN BUFFETT: Right.

CHARLIE MUNGER: And we’ve never succeeded at anything that was really hard where we didn’t have much aptitude for it.

WARREN BUFFETT: Yeah. And we’ve been doing whatever we pleased for 60 years.

CHARLIE MUNGER: Yeah, we did.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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.

Peerstreet Update 2022: Interest Rate Spreads, Secondary Market, Pocket 3.5% APY

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Another one of my Peerstreet loans was paid off recently, and I realized that it has been over a year since my last update on this experiment in real-estate debt. Here’s my current view on this unique investment.

Peerstreet in a nutshell. “Fractional investments meet hard money lending”. Real estate investors need money quickly to purchase a property, so they pay a higher interest rate for lighting-fast funding but usually only hold the debt for 12-36 months. This used to be for wealthy folks with lots of cash lying around, but Peerstreet lets SEC-accredited investors put in as little as $1,000 to fund a portion of any specific property. The loans are backed by a first lien on the real estate property.

My performance in a nutshell. Since 2016, I have funded 72 loans on 72 different properties with between $1,000 to $5,000 each. I have earned nearly $5,000 in interest at an overall IRR of 6.8% so far (verified with Excel). 67 of the loans have been paid off, 2 are current on their payments and mature in 2022, and 3 are in various stages of being late. Due to rising real estate prices, I am just being patient and letting Peerstreet handle the legal gymnastics.

Why I stopped investing in a nutshell. My 72 loans were all between 7% and 10% interest. The median was 7.50% and the average was closer to 8%. However, in the past year the rates have been more often in the 6.5% to 7% range. Traditional 30-year fixed mortgage rates are now close to 6%, and Peerstreet’s rates are a bit higher now but I am still choosing to sit out at these offered rates. I have been seeing loans taking longer to become fully funded so perhaps I’m not alone. Below are the two most recent loans available, just as an example:

Secondary marketplace. Peerstreet has added a new feature where selected people (usually larger institutions) can make offers on your existing loans prior to maturity, possibly offering you valuable liquidity. In my experience, I have only received a few lowball bids on my loans that are in foreclosure, on the order of 50 cents on the dollar. No thanks. It will be much more interesting if/when they open this up to everyone, so that you can have a more efficient marketplace for loans in default.

Peerstreet Pocket 3.5% APY. Peerstreet also rolled out an optional feature called Pocket that pays higher-than-online-bank rates on your short-term cash. They just raised the rate up to 3.5% APY. You can deposit daily, but only withdraw once a month (with two weeks notice). The funds are not FDIC-insured and are backed by the financial ability of Peerstreet (effectively this is lending money to a young start-up company).

Bottom line. I still like the idea of Peerstreet and have had an overall positive experience (you do need enough invested to maintain proper diversification across loans), but the interest rates currently being paid out just aren’t high enough to maintain my interest. I’m currently withdrawing my funds gradually as the loans get paid back over time and investing them elsewhere. 10% interest rates would get my attention back, though! 💰

If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. 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 – May 2022 Update

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Here’s my monthly roundup of the best interest rates on cash as of May 2022, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or as a bond substitute, and there are often lesser-known opportunities available to individual investors. 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 5/10/2022.

Significant changes since last month: Rates are moving. Brokered CDs and US Treasury bonds close to 3% for 5 years. 1-year Treasury close to 2%. 9.62% Savings I Bonds still available if you haven’t done it yet. 4% APY on up to $6,000 for liquid savings at Current with no direct deposit requirement.

Fintech accounts
Available only to individual investors, fintech companies often pay higher-than-market rates in order to achieve fast short-term growth (often using venture capital). “Fintech” is usually a software layer on top of a partner bank’s FDIC insurance.

  • 4% APY on $6,000. Current offers 4% APY on up to $2,000 each on three savings pods. No direct deposit required. $50 referral bonus for new members with $200+ direct deposit with promo code JONATHAP228. Please see my Current app review for details.
  • 3% APY on up to $100,000, but requires direct deposit and credit card spend. HM Bradley pays up to 3% APY if you open both a checking and credit card with them, and maintain $1,500 in total direct deposit each month and make $100 in credit card purchases each month. Please see my updated HM Bradley review for details.
  • 3% APY on 10% of direct deposits + 1% APY on $25,000. One Finance lets you earn 3% APY on “auto-save” deposits (up to 10% of your direct deposit, up to $1,000 per month). Separately, they also pay 1% APY on up to another $25,000 with direct deposit. New customer $50 bonus via referral. See my One Finance review.
  • 3% APY on up to $15,000, requires direct deposit and credit card transactions. Porte requires a one-time direct deposit of $1,000+ to open a savings account. Porte then requires $3,000 in direct deposits and 15 debit card purchases per quarter (average $1,000 direct deposit and 5 debit purchases per month) to receive 3% APY on up to $15,000. New customer bonus via referral. See my Porte review.
  • 1.20% APY on up to $50,000. You must maintain a $250 direct deposit each month for this balance cap, otherwise you’ll still earn 1.20% on up to $5,000. They also pay 6% on USDC stablecoin, but I avoid this as it is not FDIC-insured (and you can get higher rates elsewhere if you did want to hold USDC.) New customer $100 bonus via referral. See my OnJuno review.
  • 1.25% APY (no balance cap). SoFi is now offering 1.25% APY with no balance cap. You must maintain a direct deposit each month of any amount. Convenient if you already have a relationship with them. See $25 + $300 SoFi Money new account and deposit bonus.

High-yield savings accounts
Since the huge megabanks pay essentially no interest, I think every should have a separate, no-fee online savings account to accompany 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.

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 (plan to buy a house soon, 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. CFG Bank has a 13-month No Penalty CD at 1.07% APY with a $500 minimum deposit. Ally Bank has a 11-month No Penalty CD at 0.60% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 0.75% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Department Of Commerce Federal Credit Union has a 12-month certificate at 2.15% APY. $500 minimum. 180 day interest penalty on early withdrawals. Anyone can join this credit union through a $5 membership in the American Consumer Council (ACC). Enter ACC membership number on the online application.

Money market mutual funds + Ultra-short bond ETFs
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). Unfortunately, money market fund rates are very low across the board right now. Ultra-short bond funds are another possible alternative, but they are NOT FDIC-insured and may experience short-term losses at times. These numbers are just for reference, not a recommendation.

  • The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.53%.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 1.79% SEC yield ($3,000 min) and 1.89% SEC Yield ($50,000 min). The average duration is ~1 year, so your principal may vary a little bit.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.68% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.38% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. 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 5/9/2022, a new 4-week T-Bill had the equivalent of 0.50% annualized interest and a 52-week T-Bill had the equivalent of 1.94% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.38% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 0.23% (!) 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. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds 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 2022 and October 2022 will earn a 9.62% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-October 2022, 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 below 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 severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). 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, as I feel the work required and the fees charged if you mess up exceeds any small potential benefit.

  • Mango Money pays 6% APY on up to $2,500, if you manage to jump through several hoops. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.
  • NetSpend Prepaid pays 5% APY on up to $1,000 but be warned that there is also a $5.95 monthly maintenance fee if you don’t maintain regular monthly activity.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • Quontic Bank is offering 1.01% APY on balances up to $150,000. May be useful for those with high balances. You need to make 10 debit card point of sale transactions of $10 or more per statement cycle required to earn this rate.
  • The Bank of Denver pays 2.00% APY on up to $10,000 if you make 12 debit card purchases of $5+ each, receive only online statements, and make at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $25k. Thanks to reader Bill for the updated info.
  • Presidential Bank pays 2.25% APY on balances between $500 and up to $25,000, if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Evansville Teachers Federal Credit Union pays 3.30% APY on up to $20,000. You’ll need at least 15 debit transactions and other requirements every month.
  • Lake Michigan Credit Union pays 3.00% APY on up to $15,000. You’ll need at least 10 debit transactions and other requirements every month.
  • (I no longer recommend this credit union myself, but the rate is still good.) Lafayette Federal Credit Union is offering 2.02% APY on balances up to $25,000 with a $500 minimum monthly direct deposit to their checking account. No debit transaction requirement. They are also offering new members a $100 bonus with certain requirements. Anyone can join this credit union via partner organization ($10 one-time fee).
  • 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.

  • Department Of Commerce Federal Credit Union has a 5-year certificate at 3.05% APY. $500 minimum. 180 day interest penalty on early withdrawals. Anyone can join this credit union through a $5 membership in the American Consumer Council (ACC). Enter ACC membership number on the online application.
  • Live Oak Bank has a 5-year CD at 2.75% APY ($2,500 minimum) with an early withdrawal penalty of 180 days of interest.
  • KS StateBank has a 5-year CD at 2.70% APY ($500 min). Early withdrawal penalty is 18 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. Right now, I see a 5-year CD at 3.20% APY. 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. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CD at 3.00% APY vs. 2.98% for a 10-year Treasury. 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 5/9/2022, the 20-year Treasury Bond rate was 3.38%.

All rates were checked as of 5/10/2022.

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