Fed Funds Rate Drop Update: Locking In Higher Bank Yields Now

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Given the recent drop in the Fed Funds rate to nearly zero, bank have been adjusting their interest rates accordingly. Now that the dust has settled a bit, I suppose it is time to see what rates we can get now for our FDIC-insured cash. It may be a good idea to lock in some CDs based on your time horizon, and/or if you are willing to give up the liquidity.

Liquid Savings Accounts

  • DollarSavingsDirect remains the top overall rate, holding steady at 4.0% APY for now, although it could change at any time. See my quickie review here.
  • The Everbank Yield Pledge Money Market Account is offering 4.00% for 3 months guaranteed as long as you open by 12/31/08. (Balances up to $50,000.) See my review of the application process here. 4% for 3 months is actually better than any other banks’ top 3-month CD rate, while still allowing withdrawals.
  • If you signed up for the WT Direct $250 bonus, just a reminder that today (12/22) now December 31st is the last day to initiate your transfer. So you still have time, and it works out to be a good deal for a couple months of commitment.

Shorter Term (1-2 Year) Certificates of Deposit

  • FNBO Direct is offering a 9-month CD at 3.75% APY, a 1-Year CD at 4.0% APY, and a 2-Year CD at 4.26% APY. These are all very competitive for their respective lengths. The FNBO Direct liquid savings account (my review) also holds steady at 0.85% APY.

Longer Term (3+ Year) Certificates of Deposit

  • Pentagon Federal Credit Union is offering 3-year, 4-year, and 5-year CDs at 4.75% APY. If you aren’t a member, you can join the NMFA for a one-time fee of $20.
  • WaMu actually has a 5-year CD at 5% APY. Not bad if your mortgage is under 5%. Their liquid savings account continues to drop steadily (as we were afraid of) and is now only paying 1.50% APY.
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  1. I haven’t done it myself as I don’t have spare cash right now but Patelco credit union has 7% CD for 1 year for new members only for their first CD.

  2. i want to open an acct for my 1 year old
    any recommendations?

  3. Budget Save Buy says

    Great overview! Thanks! I looked at ING CD rates and was confused as to why the 1-year rate was higher than the other longer term CDs. Although, after looking at this post I highly doubt I’ll open a CD with ING.

  4. WT Direct update for the bonus cash:

    Fund your new WTDirect account by initiating an online transfer by 12/31/08. (was 12/22)

  5. Rob, the Patelco rate is only for $1000 CD’s.

  6. Hopefully DollarSavingsDirect stays strong, but it’s just a matter of time before the rate drops.

  7. Isn’t WAMU taken over by Chase?

  8. Do you think it’s a good idea to lock a few grands in i-bond? I know there’s a 3 months penalty for holding less than 5 years, but it’s still a lot better than most banks now.

  9. If it’s for your 1 year old I am assuming he/she won’t need it for awhile, buy oil.

  10. In response to Rob, the Patelco 7% APY CD rate is 6.78%. Not bad for getting new customers. The credit union in my area offers a 7.77% APY CD for minors (which is a 7.5% rate). 1stuscu.org/student has a 12 mos, $100 minimum, $1,000 maximum offer until the end of the year. If Ash lives nearby, that is in Alameda or Contra Costa counties in California, perhaps he can sign on. The child is also automatically entered to win an ipod shuffle. Just curious, what does Budget Save Buy have against ING? I like their products and their customer service – are their rates much lower now?

  11. I was going to do a simple refinance on my home soon as I was not thinking to pull any cash out, but as I am seeing rates drop, does it make sense to try and pull cash out (as long as it does not affect the rate that I get) and buy some long term safe (hopefully) security?

    The banks in my area are offering 4.75%-4.875% no pts.

    Any thoughts on whether this is a good or bad idea? If it is a good one, any thoughts on a long-term security that I could use to maximize my spread?

    I’m going to go and search various securities and rates, but I thought I would drop a line to get some input.


  12. I’m debating if I should move some of my cash from these “high yeld” savings accounts and into some bond funds. If not for a whole year, at least for several months.

    I have not been a bond investor so far and I am sure there are a lot of catches that one needs to be aware. Do any of you have any opinion to share about savings vs. bonds in this market? It would be appreciated.

  13. As of this morning FNBO has lowered their rates. Their savings account is now 2.80% APY, 6- and 9-month CDs 3.01%, 12- and 18-month CDs are 3.25% and the 24-month CD is at 3.50%.

  14. Just a follow up from my last comment above:

    As expected the market is fairly efficient. The long(er)-term CD rates have changed quite a bit since I checked about 1 month ago. I had my head filled with being able to grab a 5-10yr CD at 5.5%-6.0% and take cash out on my refinance to put into this CD. However, as expected the rates are starting to calibrate and there really is no spread anymore.

    The next time interest rates drop to all-time lows, I guess I will have to be faster. ; )

  15. Where’s the FBNO 1 year CD for 4%? Is it a special offer?

    I am a current FNBO customer and all they show are these rates:
    6-month CD 3.01%
    9-month CD 3.01%
    12-month CD 3.25%
    18-month CD 3.25%
    24-month CD 3.50%

    Too bad they dropped their savings rate to 2.8%. Might have to move elsewhere…

  16. @Ryan: “Do any of you have any opinion to share about savings vs. bonds in this market? ”
    I like bonds – I recently bought two issues of municipal bonds (AA and AAA) and one issue of corporate bonds, but I view them as investments and not as savings. Unless you are talking about I bonds or government bonds that you plan to hold to maturity, I don’t believe bonds are replacement for savings: savings are insured, bonds aren’t. Both municipal and corporate bonds carry a certain amount of risk. Government bonds are safe as they have full power of the US government behind them, but a bond fund that invests in them is a different matter entirely. The value of bonds in a bond fund is the amount of money you can get for each bond if you sell it at this point in time. As the values of bonds fluctuate, so is the value of your money in the bond fund.

    If you are really interested in bonds, you may also want to consider if you prefer bond funds or individual bonds (but you need a certain amount of money to invest in the latter – most individual bonds are sold in 5K lots although you pay less for it if a particular bond is selling below its face value). Sometimes people think that the issue of bond fund vs individual bonds are the same as with mutual fund vs individual stocks. They are not. Individual bonds are fixed income investments. They come with a fixed maturity date and a “promise” to return to you your principal at maturity and to pay you interest in the meantime. In the meantime the resale value of your bond may fluctuate, but if it drops you still have an option of waiting till maturity. Bond funds are not fixed income investments as they are comprised of many bonds each with a different maturity date. With bond funds, you get diversification which may mitigate a risk of default in individual bonds, but you are entirely dependent on bond values on secondary market since you lose the option of waiting maturity date. When the risk is perceived to be high, many bonds may lose value. When the interest rates go up (not in the cards for a while) all bond values go down. So in some respects individual bonds are less risky than bond funds (assuming you choose bonds with higher credit rating). On the other hand, a bond fund can offer you reinvestment whereas the interest on individual bonds is most often simple – you are paid it twice a year as income.

    The credit crisis and general panic created some attractive yields in bonds. But where there are good yields there is risk.
    If you are interested in bonds, I suggest you read more about them. There is bonds 101 article on cnnfn.com I believe. There is also a good description of bonds on yahoo finance.

  17. I applied for a 2 year CD at FNBO Monday (Dec. 22) which was before they dropped their rates. I got the auto generated email and have heard nothing since–nor has there been a debit created to fund the CD. I am also a little irritated because I had to fill out the whole application and I am already a customer. Why on earth should you need to do that when they already have your information? It seems that every aspect of FNBO is slow, convoluted or both. If the CD comes through at the good rate, fine. Otherwise I think I am done with them. I have several online bank accounts and all of the others are faster than FNBO.

  18. Heh, I also just noticed this site has a FNBO Direct sponsored ad that is still showing the 3.25% APY for savings accounts. Someone needs to update that. 🙂 For my money, if ING Direct keeps their rate at 2.75% APY, I’ll be moving any of my money out of FNBO Direct’s savings accounts and back to ING. The 0.10% isn’t worth the frustration of the FNBO Direct website IMO.

  19. Update: the FNBO Direct CD finally showed up in my account today (Dec. 30) and at the correct rate. It is dated on the date I applied and they still haven’t pulled the money from the external account. I guess I’ll take the free interest as compensation for my annoyances.

  20. Which term-length makes the most sense right now for a smallish $XXXX investment?

  21. In case it hasn’t been said yet………Emigrant just dropped their rate to 2.5%!!!!!! (don’t know exactly which day, just noticed it)


  22. Bernie Bildman says

    DollarSavingsDirect now down to 3.5% from 4%


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