Building a CD Ladder: Fidelity Auto vs. DIY vs. Treasury Bonds

Posted on February 13, 2019 // 12 Comments

Building a “CD ladder” means funding a combination of certificates of deposit (CDs) with different maturities so that you have always have a portion of your funds maturing soon (providing liquidity) but you also increase your interest rates (more $$$). Here are two common CD ladder types:

  • 2 Year Ladder: Four maturity “rungs” – 6-month, 12-month, 18-month, and 24-month CDs
  • 5 year Ladder: Five maturity “rungs” – 1, 2 ,3 ,4, and 5-year CDs

You start out by funding a CD for each rung (i.e. a $5,000, 5-year ladder would have $1,000 in each maturity). Then, after a year, you can keep the ladder going by buying another rung at the longest maturity (i.e. the 5-year ladder would buy another $1,000 5-year CD after one year has passed).

Fidelity has a CD ladder service where they will build a CD automatically for you using brokered CDs from their inventory. They will even re-invest, or “Auto Roll”, your maturing funds into a new rung if you wish. The service itself is free, but the CD rates aren’t necessarily the absolute highest available, especially when you include credit unions.

Alternatively, you could move around your own funds and build your own ladder (DIY) using certificates from various banks and credit unions. Finally, you could also buy Treasury bill and bonds of similar maturities, as they are also backed by the government so you can be confident that you’ll get your principal back.

I decided to run a quick survey today (February 13, 2019) to see what your average interest rates would be for the three different methods:

  • Fidelity Auto – Fidelity will construct using the highest rates in their brokered CD inventory.
  • DIY – Picking the highest rate at any FDIC or NCUA-insured institution that is open to anyone nationwide.
  • Treasury – Buying individual Treasury bonds on the secondary market (bond desk, alternative rates).

(Fidelity CDs were issued by State Bank of India, Morgan Stanley, and Goldman Sachs. DIY banks used in this comparison are Ally Bank/Limelight Bank, NASA FCU, and Georgia Banking Company. Rates as of 2/13/19.)

The chart shows that currently DIY you would gain an average of 0.40% annually on your cash invested over the automatic Fidelity service. If you had a $5,000 ladder, that would be $20 in extra interest per year. If you had a $50,000 ladder, that would be $200 a year. If you had a $500,000 ladder, that would be $2,000 a year. You would have to balance the extra work of DIY with the added convenience of the Fidelity service. This number is only a snapshot and will change over time.

Right now, Treasury bonds don’t really offer much of a premium above the top DIY CD rates in this scenario. Even if you had state income tax of 10%, your effective average APY would still only be about 2.8%. That is about break-even with the Fidelity automatic service.

This is one reason why I track the top CD interest rates each month.

Filed Under: Banking //

NASA Federal Credit Union Application and Certificate Opening Review

Posted on February 12, 2019 // 18 Comments

I recently joined the NASA Federal Credit Union to take advantage their current certificate rate specials (as mentioned in my monthly list of best interest rates). NASA FCU has had some good specials over the last year or so, and I finally decided to go through the extra effort to open an account last week since I had some funds available. Here are my notes on the application and certificate opening process that might be helpful to others.

Membership eligibility. NASA FCU’s field of membership is open to affiliated people as noted in their membership page, but you can also join a special group to become eligible:

If none of the above apply to you – we’ll provide a complimentary membership to the National Space Society (NSS) which entitles you to full NASA Federal membership benefits

Free and instant! Just click the proper option during the application process.

Application process. You will need to provide the usual personal information – name, address, SSN, driver’s license, etc. I uploaded a scanned image of my driver’s license. They also asked a few identity verification questions, I believe based on my Experian credit report.

Note: Based on online reports, I was expecting that applying for account would result in a hard credit inquiry, likely to my Experian credit report. This tends to be common practice amongst credit unions. However, it has been a week since my application and none of my credit monitoring services (which covers all 3 bureaus) have indicated that a credit check was done, including the one that tracks Experian. It might show up later, but nothing so far.

My account was approved later in the same day as my application. I also read some online reports about NASA FCU asking for additional documentation (i.e. Social Security card), but I was not asked for anything additional.

Tip: When you get the account approval e-mail, you need to open up the secure message to see your new NASA FCU account number. Write down this number as it is the account number of your share savings account.

Initial funding. As with nearly all credit unions, you must fund a share savings account with at least $5 and keep the $5 there. I was given the option to fund with credit card (up to $500) or bank account. I tried to fund it with $500 from a rewards credit card (to get some cash back), but the transaction was rejected. I’m not sure if it was because it was trying to go through as a cash advance, or some other reason. I later funded it with a bank account instead.

Opening the certificate special. This time around, I opened their special 15-month certificate at 3.20% APY via this page. After doing so, there was a message directing me to fund it with a mailed check to a specific address with 10 days:

There may be other options like walking in a check or using a credit union shared deposit network, but I like to do things online whenever possible. My usual process is to link my new credit union with my Ally savings account hub. First, I used the account number from the approval message (see above) and the NASA FCU routing number of 255077833. I had to use the 2 small test deposit method for verification, so that took a day. Then, Ally let me push funds with a 1-day transfer into the savings account. Finally, I used the NASA FCU Live Chat feature to have them fund my special certificate using the funds in the share savings account. Here’s my timeline:

  • Day 1 – Started application and got approval. Initiated link via Ally Bank.
  • Day 2 – Verification deposits arrived at NASA FCU. Verified link via Ally Bank. Initiated transfer.
  • Day 3 – Funds arrived at NASA FCU. Used Live Chat to fund certificate.
  • Day 4 – Certificate open and funded.

The share certificate now shows up on my online banking page, right next to the share savings account. I didn’t have to mail in anything, like a signature card. I hope that NASA FCU keeps up their trend of offering top certificate rates.

Filed Under: Banking, Reviews //

Best Interest Rates on Cash – February 2019

Posted on February 4, 2019 // 4 Comments

Here’s my monthly roundup of the best interest rates on cash for February 2019, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 2/3/19.

High-yield savings accounts
While the huge megabanks like to get away with 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 prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

  • Redneck Bank offers 2.50% APY on balances up to $50,000. CIT Bank Savings Builder is now up to 2.45% APY with a $100 monthly deposit (with no balance limit). There are several other established high-yield savings accounts at 2% APY and up.
  • Got a lot of friends or followers? You can 4.30% APY on up to $50,000 for 30 days via the Empower app, plus another 30 days for each friend that you refer to the. First month is free + 11 referrals = 4.30% APY for a year.

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.

  • Marcus Bank has 13-month No Penalty CD at 2.35% APY with a $500 minimum deposit, Ally Bank has a 11-month No Penalty CD is at 2.30% APY with a $25k+ minimum, and CIT Bank has a 11-month No Penalty CD at 2.05% APY with a $1,000 minimum deposit. 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. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Sallie Mae Bank has a 1-year CD at 2.85% APY ($2,500 minimum) with an early withdrawal penalty of 90 days of interest.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the money for themselves). The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 2.48% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.32%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.73% SEC Yield ($3,000 min) and 2.83% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.97% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 3.07% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 2/1/19, a 4-week T-Bill had the equivalent of 2.41% annualized interest and a 52-week T-Bill had the equivalent of 2.56% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.30% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.19% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2018 and April 2019 will earn a 2.82% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2019, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend or use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Signature “credit” purchases of $1,500 or more and a minimum balance of $25.00 at the end of the month is needed to qualify for the 6.00%.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore, either.

  • The best one left is Consumers Credit Union, which offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on cash back rewards elsewhere. Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but some with a 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.

  • NASA Federal CU has a 15-month certificate at 3.20% APY and a 25-month at 3.25% APY ($10,000 minimum). 182 day early withdrawal penalty. Anyone can join this credit unions with via membership in partner organization (see application). Ally Bank has a 14-month CD at 2.85% APY (no minimum). 60 day early withdrawal penalty.
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.53% APY ($60k min), 3.47% APY ($20k min), or 3.41% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 2.65% APY and a 5-year non-callable CD at 3.10% APY. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.35% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. As of 1/9/19, the 20-year Treasury Bond rate was 2.86%.

All rates were checked as of 2/3/19.



Filed Under: Banking, Deals & Offers, Investing //

Empower Banking App Review: 4.30% APY for 30 Days with Each Referral (But Be Careful)

Posted on January 29, 2019 // 8 Comments

Update April 2019: I have had trouble with Empower after opening an account, specifically getting them to credit my interest. I would not recommend Empower as a bank replacement at this time. They do not have have any phone number for customer support and their text-based support is often slow to respond. Combined with the fact that there are no branches, I don’t like that there is nobody to talk to immediately if there is an important problem.

Original post:

The Empower app is a combination of an online checking/savings account and an “AI” assistant that analyzes your income and spending activity from external bank accounts as well. The savings account currently offers a base 2.15% APY and the checking offers 1% cash back on the first $1,000 in debit card purchases each month. A newly referred user can get a 30 day boost of double those numbers – 4.30% APY and 2% cash back. You can get an additional 30-day boost for each friend that you refer. I’ve had this account open for a week now, and here are my thoughts.

Application process (App-only). You must do everything in the iOS or Android app – initial application, funding, transfers, etc. They require all the usual bank things like SSN, but they explicitly state that they will not run a credit check. I don’t believe there is a web browser interface at all. Everyone who opens an account gets both a checking and savings account, plus the digital assistant. Note that when you link an external bank account, the digital assistant will parse through your historical and ongoing transactions and look for ways to save you money. You can easily turn it off, but this may affect the choice of what bank account you wish to link.

(Note: The referral program may only be available to those who use the Apple iOS version of their app. This might have changed already or may change later, but I only have the iOS app running right now.)

Empower Checking has no minimum balance, no monthly fees, no overdraft fees, and free ATM withdrawals from the 25,000 ATMs in the MoneyPass network. In addition, they will reimburse you for one (1) out-of-network ATM transaction each month. I like this last feature as I only take cash out of an ATM about once a month. They give you your debit card number immediately, but will send you a physical Visa debit card as well.

This is a “real” FDIC-insured bank, with deposits insured of up to $250,000 per titled account through Evolve Bank & Trust, FDIC certificate number #1299. The routing number provided in the app is that of Evolve Bank. You can use the routing and account numbers to link your Empower account to other online banks (on their side) without giving Empower access to your transaction history.

The linked debit card offers a base 1% cash back on the first $1,000 in purchases spend each month. Newly referred users get a 30-day boost to 2% cash back, and each time you successfully refer someone to Empower, you will receive another 30-day boost. Debit card purchases have no foreign transaction fees.

Empower Savings has no minimum balance and no monthly fees. The current base interest rate is 2% APY. Newly referred users get a 30-day boost to 4% APY (capped at a $50,000 balance), and each time you successfully refer someone to Empower, you will receive another 30-day boost. You can transfer money between checking and savings instantly, but the savings account is still subject to the federal law limiting withdrawals from savings to six (6) times per month.

Referral program details. There are some important clarifications to their referral program. Here are selected parts:

  • You earn 30 days of boost for each referred friend that opens an Empower bank account and deposits at least $10.
  • Your boost will start the first day the funds clear into your referred friend’s account. If you are already receiving a boost, your boost for any subsequent qualifying referrals will start once any prior boosts conclude. (i.e. invite 3 friends and your can earn three consecutive 30 day boosts).
  • Your referred friends each get a 30 day boost starting the day their deposit of $10 or more clears into their Empower account.
  • During each 30-day boost, each person will earn an additional 1% cashback on the first $1,000 of their debit card transactions during the boost period and an additional 2% per annum Cash Reward on up to $50,000 of savings account balance. The 2% per annum Cash Reward is in addition to the 2.00% APY that is paid on Empower savings accounts.
  • Boost rewards are paid out at the end of each boost period.
  • Invite friends by logging in to your Empower app and sending an invite SMS to your friends.
  • The phone number you text must be the same phone number that your friend signs up for Empower banking with to be eligible.
  • The invited friend cannot be an existing or previous Empower banking customer, nor can they have been invited by someone else in the past.

My experience. Empower feels like the future. Everything is done via app, and it’s kind of creepy. (Yup, that’s my view of the future. Apps and kinda creepy.) The user interface is smooth and I actually like that part. Once you link your external bank, it immediately scans your transactions and points out ways to save money (“You need a new insurance quote! Your premium of $1,234 is too high!” or “Cancel this subscription!”). You may love this feature, or not. My bet is that the megabank apps from Chase, Bank of America, and Wells Fargo will all do this type of stuff eventually.

However, I would not recommend Empower as a bank replacement at this time. They do have have any phone number for customer support and their text-based support is often slow to respond. Combined with the fact that there are no branches, I don’t like that there is nobody to talk to immediately if there is an important problem.

In the end, I don’t see anything drastically new that would make me recommend this app on an ongoing basis unless you had a lot of friends that want a new bank. Lots of online checking accounts offer ATM reimbursements now. 2% APY is common across online savings accounts. The 1% cash back on debit card purchases isn’t that special.

Now, if you did have 12 friends to refer (and $50,000), you could get 4.30% APY on up to $50,000 for a year. That’s an extra $1,150 in annual interest as compared to 2% APY, nothing to sneeze at.

Bottom line. Empower.me is a new fintech banking app that combines a no-minimum checking account, a no-minimum savings account, and AI financial assistant that analyzes your spending and makes suggestions. The feature that makes it noteworthy is that a new user can get a 30 day boost of double their normal interest to 4.30% APY for each friend that they refer to open a new account. However, I would not recommend Empower as a bank replacement at this time due to their lack of even a phone number for customer service. Most online banks have at least a phone number during business hours, and for example Ally Bank has humans available 24/7.

Filed Under: Banking, Deals & Offers //

Best Interest Rates on Cash – January 2019

Posted on January 9, 2019 // 13 Comments

Here’s my monthly roundup of the best interest rates on cash for January 2019, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 1/9/19.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring money electronically from your checking account to an online savings account. The interest rates on savings accounts can drop at any time, so I prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big pile of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a locked-in rate with no early withdrawal penalty. That means your interest rate can never go down, but you can still take out your money (once) if you want to use it elsewhere. Marcus Bank has 13-month No Penalty CD at 2.35% APY with a $500 minimum deposit, Ally Bank has a 11-month No Penalty CD is at 2.30% APY with a $25k+ minimum, and CIT Bank has a 11-month No Penalty CD at 2.05% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • First Internet Bank has a 1-year CD at 2.89% APY ($1,000 minimum) with an early withdrawal penalty of 180 days of interest.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the money for themselves). The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 2.44% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.31%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.71% SEC Yield ($3,000 min) and 2.81% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.96% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.98% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-Bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 1/8/19, a 4-week T-Bill had the equivalent of 2.40% annualized interest and a 52-week T-Bill had the equivalent of 2.60% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.24% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.16% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2018 and April 2019 will earn a 2.82% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2019, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend or use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Signature purchases of $1,500 or more and a minimum balance of $25.00 at the end of the month is needed to qualify for the 6.00%.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore, either.

  • The best one left is Consumers Credit Union, which offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on cash back rewards elsewhere. Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD.

  • INOVA Federal CU has a 14-month CD at 3.00% APY and a 20-month at 3.15% APY ($200 minimum). 180 day early withdrawal penalty. Premier America CU has 15-month CD at 3.10% APY ($1,000 minimum). Anyone can join these credit unions with via membership in partner organization (see application).
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.69% APY ($60k min), 3.62% APY ($20k min), or 3.56% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 2.75% APY and a 5-year non-callable CD at 3.20% APY. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.45% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. As of 1/9/19, the 20-year Treasury Bond rate was 2.86%.

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



Filed Under: Banking, Deals & Offers, Investing //

Robinhood (Not a) Checking Account 3% APY: SIPC Insurance Confusion

Posted on December 14, 2018 // 7 Comments


Update: Robinhood basically pulled the plug on the entire thing.

I don’t know who does PR for Robinhood, but they are good. I don’t ever recall this many media articles in a single day for a pseudo-checking account. Techcrunch, Barron’s, Business Insider, Bloomberg, USA Today, CNBC, Marketwatch… All coming the day after they deactivated some user accounts without notice and halted all options trading mid-day.

Robinhood announced a new Checking & Savings Cash Management account to expand their existing (required) brokerage account product. Robinhood is not a bank, and this account is not FDIC-insured. They did partner with Sutton Bank to provide a debit card, but deposits are not held at Sutton Bank. After reading through all their materials, here’s what is included:

  • 3% APY, subject to change at any time.
  • No minimum balance, no monthly fee, no overdrafts allowed.
  • ATM/Debit card with free access at 75,000+ ATMs (Allpoint and MoneyPass ATM networks). Only 4,000 of those ATMs accept deposits, and you are limited to depositing up to $1,000 per day and $5,000 per month.
  • “Pay bills, send and receive checks, transfer money, and set up direct deposit–all from the Robinhood app.”
  • “This process will not affect your credit score.” (I assume this means no credit check.)
  • No physical checkbooks. You request a check via app and they will send a physical check via USPS First Class mail the next business day. Limited to $2,500 per day and $10,000 total per month.
  • Mobile check deposit (take pictures on your smartphone) is limited to $2,500 per day and $10,000 total per month.

What does SIPC insurance mean? As with any other US brokerage account, Robinhood has SIPC insurance. This covers up to $500,000 by the SIPC in cash and securities, of which $250,000 can be in cash. SIPC does not cover changes in value to securities. However, you may be surprised to know that per the SIPC website, the following are considered securities:

  • Money market mutual funds.
  • Treasury bills and Treasury bonds.
  • Certificates of deposit.

Is your money earning 3% APY at Robinhood cash? securities? Robinhood is being rather vague about this. They say “we only use the safest assets, such as US treasuries”. Well, short-term US Treasuries are securities and they don’t even earn 3%. They call it a “cash management account”, but many cash management accounts have an FDIC-insured sweep (i.e. Fidelity CMA). Are they keeping it as pure “cash” and just crediting you money on the side somehow? Are they just creating another money market mutual fund? Money market mutual funds are securities, and tightly regulated ones, especially after 2008 when the Reserve Primary Fund did “break the buck”. Is the SIPC going to let them offer a loss-leader money market fund that pays out more interest than it earns?

(Update: The SIPC has some concerns.)

(Update 2: Looks like Robinhood got a phone call and they have to change the name from “Checking & Savings”. Seems like they will still try to work this in as a cash management account.)

In my opinion, if this is just a hyped-up money market mutual fund, the worst case scenario is that start-up Robinhood runs out of venture capital giving away free trades and crazy interest and both the brokerage fails and the money market fund has issues. This means you may not have access to your money for a while. The Reserve fund mentioned above gave back 99 cents on the dollar, but it took over a year (!) for all the money to be distributed. No interest was paid during that lost time. Following that history, you will probably get most of your cash back eventually (up to the limits) since money market mutual funds must only hold relatively safe assets. Then there is the hassle from losing potentially your primary checking account and all the bill payments, direct deposits, etc.

In contrast, I feel that the FDIC has a more streamlined process to handle bank failures. Several banks fail every year. As long as you are within the limits, you’ll get every last penny back. Nearly all of the time, another bank will take over the deposits immediately and your transactions will keep posting as usual.

I see a lot of internet comments that are either “OMG I’m moving all my money here!” or “OMG you’d be stupid to keep any money here!”. I’m in the middle. I am signing up on the waitlist (that’s my referral link so I move up the waitlist) since it’s free and will read through the application fine print when the dust settles. Right now, Robinhood is just in hype mode. By the time they actually start accepting money, 3% APY might not be all that special.

In any case, I don’t plan to move all of my money or my daily transactions over there. I just don’t trust them enough as a young start-up with barebones customer service that discourages phone calls. With all of the various deposit and withdrawal limits, I would definitely consider maintaining a full-service checking account somewhere else.

If you like how this sounds but don’t have a Robinhood brokerage account yet, you should get your free share of stock first since you need that opened first anyway. WeBull also offers new users free trades and a free share of stock.

Filed Under: Banking, Deals & Offers, Investing //

EBSB Direct High Yield Savings Account 2.50% APY ($5,000 minimum)

Posted on December 13, 2018 // 2 Comments

Update 1/10/19: Gone again! I wish they would just tell you they aren’t taking applications instead of pulling all the information down completely.

Update 12/13/18: Looks like they brought this account back and are accepting new applications again.

Update 11/4/18: Looks like this one got pulled early. Right now I only see the Money Market 3 account available at 1.80% APY.

EBSB Direct has a new High Yield Statement Savings Account that pays 2.50% APY on balances between $5,000 and $1 million. No interest is paid if your balance is below $5,000.

$50 minimum to open. If you are an existing EBSB Direct customer, to open this account you must deposit new money from another financial institution. Interest is compounded monthly and credited monthly. There is a $25 fee if you close the account within 180 days of opening.

EBSBDirect.com appears to be the nationally-available, online division of East Boston Savings Bank. However, be careful not to apply at the main bank website EBSB.com unless you are a resident of MA, RI, or NH as they will reject your application. I guess the checking accounts and branches are only for locals.

This account is notable as it is the first nationally-available savings account to reach 2.50% APY. Unfortunately, there is no rate guarantee period. I’m hesitant to open yet another bank account without a rate guarantee or a locked-in CD, but hopefully the other banks will catch up soon. As of January 2019, the second-highest rate is from CIT Bank at 2.45% APY. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts.

Filed Under: Banking //

Best Interest Rates on Cash – December 2018

Posted on December 3, 2018 // 16 Comments

Here’s my monthly roundup of the best interest rates on cash for December 2018, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 12/3/18.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring money electronically from your checking account to an online savings account. The interest rates on savings accounts can drop at any time, so I prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a locked-in rate with no early withdrawal penalty. That means your interest rate can never go down, but you can still take out your money (once) if you want to use it elsewhere. Ally Bank 11-month No Penalty CD is at 2.25% APY for $25k+ balance, Marcus Bank 13-month No Penalty CD at 2.15% APY with a $500 minimum deposit, and the CIT Bank 11-Month No Penalty CD at 2.05% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Live Oak Bank has a 1-year CD at 2.85% APY ($2,500 minimum) with an early withdrawal penalty of 90 days of interest.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the money for themselves). The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 2.30% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.19%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.64% SEC Yield ($3,000 min) and 2.74% SEC Yield ($50,000 min). The average duration is ~1 year, so there is a little more interest rate sensitivity.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.66% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.75% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-Bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 11/30/18, a 4-week T-Bill had the equivalent of 2.30% annualized interest and a 52-week T-Bill had the equivalent of 2.69% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.18% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.07% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2018 and April 2019 will earn a 2.82% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2019, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Signature purchases of $1,500 or more and a minimum balance of $25.00 at the end of the month is needed to qualify for the 6.00%.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore, either.

  • The best one left is Consumers Credit Union, which offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on cash back rewards elsewhere. Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD.

  • Mutual One Bank has a 19-month CD at 3.04% APY ($500 min). 6 month early withdrawal penalty.
  • Greenwood Credit Union has a 5-year certificate at 3.75% APY ($1,000 min). Early withdrawal penalty is 6 months interest. United States Senate Federal Credit Union has a 5-year Share Certificate at 3.63% APY ($60k min), 3.57% APY ($20k min), or 3.51% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 3.10% APY and a 5-year non-callable CD at 3.55% APY. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.60% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. As of 11/30/18, the 20-year Treasury Bond rate was 3.19%, so this EE bond is no longer offering a huge premium.

All rates were checked as of 12/3/18.



Filed Under: Banking, Deals & Offers, Investing //

Garden Savings Federal Credit Union: 4-Year CD at 4.08% APY

Posted on November 6, 2018 // 11 Comments

(Update: “Due to the tremendous success of our certificate promotion, we have concluded the special rates that were being offered as of the end of business on Friday, November 9th.” Reader Ryan adds that as long as you started the application process before the end of business on Friday, they will let you complete the process but you must fund by the next Friday.)

Garden Savings Federal Credit Union has a limited-time certificate special on their 4-Year Share Certificate at 4.08% APY. They also have a 2-Year certficiate at 3.04% APY. NCUA-insured. Here are the highlights:

  • $500 minimum deposit.
  • Interest paid monthly.
  • Penalty for early withdrawal is 180 days of dividends.
  • Membership with at least $5 deposited in a Share Savings account required.

According to a myFICO forum post from 2016, the membership application is a soft credit pull. This is not a guarantee, of course. Please share your own experience if you apply.

If you have the big bucks, Garden Savings FCU has the usual NCUA-insurance up to $250,000, but also another $250,000 in additional deposit insurance through Excess Share Insurance.

Credit union membership eligibility. You are eligible for membership if you live, work, worship, attend school, volunteer or regularly conduct business in Newark, Elizabeth, or Jersey City. Select employer groups are also eligible. In addition, anyone can join by being a member of the American Consumer Council (ACC), a non-profit organization dedicated to consumer education, advocacy and financial literacy. The cost is a one-time $8, although there is a promo code “consumer” that has worked to get the membership fee waived. You can make additional donations as you wish, but it is not required. They will send you an e-mail shortly with your ACC membership number. I’ve joined a couple of credit unions with my ACC membership.

Good deal? 4.08% APY is the best rate that I know of for a 4-year CD, with the current competitive range for a 4-year CD being around 3% to 3.35% APY. The closest deal from my Best Cash Rates November 2018 post was a 5-year CD at 3.63% APY that required a $60,000 deposit. A 5-year Treasury bond currently yields about 3.05% and is exempt from state and local income taxes. The 180-day early withdrawal penalty is on the reasonable side.

I think the deal is good enough that it won’t last very long. This credit union is not tiny, but it isn’t huge either. It is quite possible that there will be enough new applications to overwhelm their staff (and deposit needs). If you’re interested, I would act quickly as these deals can end abruptly. I’d be ready to send in additional paperwork (like a copy of your driver’s license) if requested to expedite things.

Filed Under: Banking, Deals & Offers //

Best Interest Rates on Cash – November 2018

Posted on November 5, 2018 // 1 Comment

Here’s my monthly roundup of the best interest rates on cash for November 2018, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much extra interest you’d earn if you are moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 11/5/18.

High-yield savings accounts
While the huge megabanks like to get away with 0.01% APY, getting higher rates is as easy as transferring money electronically from your checking account to an online savings account. The interest rates on savings accounts can drop at any time, so I prioritize banks with a history of competitive rates. Some banks will bait you and then lower the rates in the hopes that you are too lazy to leave.

  • MemoryBank and Redneck Bank offer 2.25% APY with no minimum balance (Redneck has $50k maximum balance). Northpointe Bank offers 2.30% APY with a higher $25,000+ minimum, guaranteed for 12 months. If you have existing accounts at CIT Bank, you may wish to move some money over to their new Savings Builder account at 2.15% APY. There was a bank (EBSB Direct) that offered 2.50% APY for a bit last month, but has since pulled the account information completely from their website. I hope they keep the rate high for existing accountholders. There are several other established high-yield savings accounts at 1.80% APY and up.
  • My primary “hub” bank account is the Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall ease of use. The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is currently at 1.90% APY. From here, I open “spoke” accounts and CDs from other banks to lock in higher rates. (Ally Bank also recently had a good promotion that offered a 1% bonus on new deposits held for 3 months, but enrollment is now closed.)

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No-Penalty CDs offer a locked-in rate with no early withdrawal penalty. That means your interest rate can never go down, but you can still take out your money (once) if you want to use it elsewhere. The Marcus 13-month No Penalty CD is at 2.15% APY with a $500 minimum deposit. Ally Bank 11-month No Penalty CD is at 2.10% APY ($25k minimum) and the CIT Bank 11-Month No-Penalty CD is at 2.05% APY ($1,000 minimum). The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you keep full liquidity. You can open multiple CDs in smaller $1,000 increments to get even more flexibility.
  • VirtualBank has a 1-year CD at 2.75% APY ($10,000 minimum) with an early withdrawal penalty of 1% of principal.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have been rising. The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 2.21% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 2.10%. 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 2.58% SEC Yield ($3,000 min) and 2.68% SEC Yield ($50,000 min). The average duration is ~1 year, so there is a little more interest rate sensitivity.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.55% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.64% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-Bill interest is exempt from state and local income taxes.

  • You can buy individual Treasury Bills at certain brokerage accounts with a bond desk like Vanguard and Fidelity, or individuals can buy them directly at TreasuryDirect.gov. Here is my post on building your own T-Bill ladder. Here are the current Treasury Bill rates. As of 11/2/18, a 4-week T-Bill had the equivalent of 2.18% annualized interest and a 52-week T-Bill had the equivalent of 2.69% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.05% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 1.97% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2018 and April 2018 will earn a 2.82% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2019, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice.

  • The only notable card left in this category is Mango Money at 6% APY on up to $5,000, but there are many hoops to jump through. There is a $3 monthly fee and you need to maintain a minimum $800 net direct deposit each month. This means you can’t direct deposit $800 and also take out $800 via online transfer. Checks and ATM withdrawals have additional fees. This means you have to spend the money via the Visa debit card (and miss out on flat 2% cash back on all purchases).

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. That’s just how it goes with these types of accounts.

  • Consumers Credit Union offers 3.09% to 5.09% APY on up to a $10k balance depending on your qualifying activity. The highest tier requires their credit card in addition to their debit card (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases just above the $100 requirement, as for every $500 in monthly purchases you may be losing out on 2% cash back elsewhere (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.
  • If you’re looking for a non-rewards high-yield checking account, MemoryBank has a checking account with no debit card requirements at 1.60% APY.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash reserves. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD.

  • Mutual One Bank has a 19-month CD at 3.04% APY ($500 min). 6 month early withdrawal penalty.
  • United States Senate Federal Credit Union has a 5-year Share Certificate at 3.63% APY ($60k min), 3.57% APY ($20k min), or 3.51% APY ($1k min). Note that the early withdrawal penalty is a full year of interest. Anyone can join this credit union via American Consumer Council.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 2-year non-callable CD at 3.05% APY and a 5-year non-callable CD at 3.55% APY. Watch out for higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.60% APY. Watch out for higher rates from callable CDs from Fidelity. Matching the overall yield curve, current CD rates do not rise much higher as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. As of 11/2/18, the 20-year Treasury Bond rate is now 3.37%, so this EE bond is no longer offering a huge premium.

All rates were checked as of 11/5/18.

Filed Under: Banking, Deals & Offers //

Savings I Bonds November 2018 Interest Rate: 2.32% Inflation Rate, 0.50% Fixed Rate

Posted on November 1, 2018 // 9 Comments

sb_poster

Update 11/1/18. The fixed rate will be 0.50% for I bonds issued from November 1, 2018 through April 30, 2019. The variable inflation-indexed rate for this 6-month period will be 2.32% (as was predicted). The total rate on any specific bond is the sum of the fixed and variable rates, changing every 6 months. If you buy a new bond in November 2018, you’ll get 2.82% for the first 6 months. See you again in mid-April 2019 for the next early prediction.

Original post 10/14/18:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2018 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2018 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New inflation rate prediction. March 2018 CPI-U was 249.554. September 2018 CPI-U was 252.439, for a semi-annual increase of 1.16%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.32%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Tips on purchase and redemption. You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2018. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.30%. You will be guaranteed a total interest rate of 2.52% for the next 6 months (0.30 + 2.22). For the 6 months after that, the total rate will be 0.30 + 2.32 = 2.62%.

Let’s look at a worst-case scenario, where you hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2018 and sell on October 1, 2019, you’ll earn a ~2.09% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~2.20% annualized return for a 14-month holding period (assuming my math is correct). Compare with the best interest rates as of October 2018.

Buying in November 2018. If you buy in November 2018, you will get 2.32% plus a newly-set fixed rate for the first 6 months. The new fixed rate is unknown, but is loosely linked to the real yield of short-term TIPS, which has been rising a bit. The current real yield of 5-year TIPS now about ~1.00%. My best guess is that it will be 0.50% or 0.60%. Every six months, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate (set at purchase) + variable rate (minimum floor of 0%).

Buy now or wait? In the short-term, these I bond rates will not beat a top 12-month CD rate if bought in October, and probably won’t if bought in November unless inflation skyrockets. Thus, I probably wouldn’t buy in October. I haven’t bought any savings bonds yet this year, and will wait until November to see what the new fixed rate will be. If it greatly lags the real yield on short-term TIPS, then I will probably just buy TIPS instead. However, if it is close, I will probably buy some savings bonds as a long-term investment given the unique benefits below.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and educational tax benefits.

Over the years, I have accumulated a nice pile of I-Bonds and now consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

Filed Under: Banking, Investing, Savings Bonds //

Chase Bank Bonus: $600 Total Checking + Savings, 60,000 Point Upgrade to Sapphire Banking

Posted on October 25, 2018 // 6 Comments

Chase Bank has updated banking promotions for new customers without a Chase Bank account (closed more than 90 days ago and haven’t gotten a bonus in the last 2 years). The first bonus is for their Total Checking and Savings accounts, and if you satisfy that and have a Sapphire credit card, you can upgrade to the Sapphire Banking with higher requirements.

  • Up to $600 for opening a new Total Checking + Savings account. You must move over a direct deposit on the new checking account ($300 bonus), and/or deposit and maintain $15,000 in the savings account for 90 days ($200). Do both, and get another $100, for $600 total. The easiest way to avoid monthly fee is to keep $1,500 in Total Checking and $300 in Savings.
  • 60,000 Ultimate Rewards points for upgrading to a Chase Sapphire bank account. Got a Chase bank account and a Sapphire credit card? They want your business, so take a look at their upgrade offer to Sapphire Banking. You must move over $75,000 in assets (bank deposits or securities) to Chase Bank or Chase You Invest brokerage. You can simply move over some existing stocks, ETFs, or mutual funds via ACAT transfer and your tax cost basis should transfer. Alternatively, you could buy US Treasury bills in the brokerage account as an alternative to Chase Bank’s sad interest rates. You need to also have the Chase Sapphire Preferred or Chase Sapphire Reserve credit card.

Together, this could be up to $1,500 total value. If you have the Chase Sapphire Reserve card, the 60,000 points are worth $900 towards travel (or 60,000 airline miles). $900 airfare/hotel/car rental value + $600 cash = $1,500. If you have the Chase Sapphire Preferred card, the 60,000 points are worth $750 towards travel (or 60,000 airline miles).

Here are previous posts on the Chase Total Checking bonus and Chase Sapphire Banking bonus with more details.

Filed Under: Banking, Deals & Offers, General //
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