Sharonview Federal Credit Union: 64-Month CD at 4% APY

Posted on March 4, 2018 // 2 Comments

(Update: As of 3/10/18, this offer is expired. If you opened a Sharonview membership by the end of business (5pm ET) on Friday 3/9, you should be able to fund your certificate if done soon. I would contact them for details, they have been quite professional and reasonable based on my own interactions with them.)

sharonview2Sharonview Federal Credit Union has a limited-time certificate special on their 64-month Share Certificate at 4% APY. NCUA-insured. Found via DepositAccounts. Here are the highlights:

  • Minimum new money deposit of $500 required.
  • Regular or IRA option.
  • Deposit up to $100,000 of existing funds.
  • Deposit up to $250,000 of new funds.
  • Penalty for early withdrawal is 365 days dividends on the amount withdrawn. The penalty will, if necessary, be taken from the principal amount of the deposit.
  • For share certificates, there is a 5 day grace period provided at maturity.
  • Hard credit pull with a new membership application (according to various reports)

Membership eligibility. Their eligibility criteria is relatively open. Anyone who lives in North Carolina, South Caroline, Georgia, Tennessee, or Virginia can join if they are a member of the Carolina Consumer Council (CCC). Use promo code SFCU and the dues will even be waived. It has been noted that the CCC falls under the American Consumer Council (ACC), of which some of you may already be a member. It is not completely clear if ACC membership alone is adequate for joining the credit union.

In any case, it appears that anyone nationwide can join Sharonview FCU by joining the Hobby Farmers of America with a one-time $20 fee.

Good deal? If you have a lot of cash that you want to park safely for 5 years, this is a top rate by a full percentage point or so. A 5-year Treasury bond currently yields about 2.6%. The hard credit pull and possible $20 entry fee make it better for high balances to make it worth the trouble. Note that the 365-day early withdrawal penalty is relatively stiff, as for example you would have to keep it in there for at least two years just to get 2% APY. If you withdraw within the first year, you’ll actually lose money.

I think the deal is good enough to worry if this deal will last until next week. 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). You might pony up $20, start the application process, take the credit pull hit, and have the deal fall apart before you can fund the certificate. I’m not saying this will happen, but it is possible. (I suppose it is also possible that this is only the start of multiple places offering 4% APY CDs). Basically, if you’re interested, I would act immediately.

Filed Under: Banking, Deals & Offers //

Best Interest Rates on Cash – March 2018

Posted on March 1, 2018 // 11 Comments

percentage2

We just helped an older relative renew a 12-month CD at her local bank branch for 0.30% APY. She had no need nor desire to move it elsewhere for a higher interest rate. I suppose this partially explains the piddly rates that many traditional banks can offer and still get away with it. But if you’re reading this, you have internet access and an e-mail address! Keep those big banks on their toes and shop around.

Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over. Rates listed are available to everyone nationwide. Rates checked as of 3/1/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • Some familiar pre-crisis names are rising back up. Remember EmigrantDirect? Its brother DollarSavingsDirect is at 1.80% APY. Former top bank FNBO Direct is now at 1.60% APY. Redneck Bank/All America Bank is at 1.75% APY (max balance $50k).
  • My “hub” bank account is the Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall user experience. I then move money elsewhere if the rate is significantly higher (and preferably locked in via CD rate). The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings has been raising their rates, but it still lags a bit at 1.45% APY.

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

  • Vanguard Prime Money Market Fund currently pays an 1.52% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.36%. 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 1.93% SEC Yield ($3,000 min) and 2.03% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.82% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.92% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

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

  • CIT Bank 11-Month No-Penalty CD is at 1.85% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • NASA Federal Credit Union has a promotional 11-month CD at 2.25% APY ($20,000 minimum). However, you should be sure to keep it in there the entire term as the Early withdrawal penalty is 182 days of interest. Ally Bank has a 12-month CD at 2.00% APY again, but with $25,000 minimum deposit. Early withdrawal penalty is 60 days of interest.

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

  • “I Bonds” bought between November 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

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

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop quickly, leaving a “bait-and-switch” feeling. For example, Northpointe Bank was mentioned for several months here but recently stopped accepting new applications and a few months later dropped to 1% APY for existing customers. That’s just how it goes with these types of accounts.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.

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

  • Live Oak Bank has an 18-month CD at 2.30% APY ($2,500 min). Early withdrawal penalty is 90 days of interest. Both Fidelity and Vanguard have 2-year brokered CDs at 2.50% APY (see below).
  • Ally Bank has a 5-year CD at 2.50% APY ($25,000 minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 2 years you’d still get an 1.99% effective APY even after accounting for the penalty.
  • Both Connexus Credit Union and Mountain America Credit Union have a 5-year Share Certificate at 3.00% APY (minimum deposit varies). Both can be joined via a partner organization for a one-time $5 fee, usually right on the online application. I previously ran a Ally vs. Connexus 5-year CD comparison to show the effect of a larger early withdrawal penalty. Ally rates have risen a bit since that post was published.

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

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable fixed early withdrawal penalties. As of this writing, Vanguard is showing a 10-year non-callable CD at 3.05% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 3/1/18.


CIT Bank No-Penalty CD

Filed Under: Banking, Deals & Offers //

Best Interest Rates on Cash – February 2018

Posted on February 4, 2018 // 8 Comments

percentage2

Short-term interest rates continue to rise, as are inflation expectations. Meanwhile, the megabanks make billions by pay you nothing for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over. Rates listed are available to everyone nationwide. Rates checked as of 2/4/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • AbleBanking at 1.70% APY, DollarSavingsDirect and Live Oak Bank at 1.60% APY, CIT Bank at 1.55% APY, all with no minimum balance requirement. SalemFiveDirect, Marcus/GS Bank at 1.50% APY.
  • I currently keep my “hub” account at Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall user experience. I then move money elsewhere if the rate is significantly higher (and preferably locked in via CD rate). The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is now lagging a bit at 1.35% APY.

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

  • Vanguard Prime Money Market Fund currently pays an 1.45% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.29%. 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 1.88% SEC Yield ($3,000 min) and 1.98% SEC Yield ($50,000 min). The average duration is ~1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.75% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.86% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

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 short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 11-Month No-Penalty CD is at 1.55% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • Live Oak Bank has a 12-month CD is at 2.10% APY with a $2,500 minimum deposit. Early withdrawal penalty is 90 days of interest. Ally Bank has a 12-month CD at 2.00% APY again, but with $25,000 minimum deposit. Early withdrawal penalty is 60 days of interest.

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

  • “I Bonds” bought between November 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

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

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop quickly, leaving a “bait-and-switch” feeling. For example, Northpointe Bank was mentioned for several months here but recently stopped accepting new applications. Unclear how long existing accountholders will be grandfathered. That’s just how it goes with these types of accounts.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.

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

  • Live Oak Bank has an 18-month CD at 2.30% APY ($2,500 min) and a 24-month CD at 2.35% APY ($2,500 min). The early withdrawal penalty is the equivalent of 90 days of interest on the principal amount withdrawn for CD terms less than 24 months or 180 days of interest on the principal amount withdrawn for CD terms of 24 months or longer.
  • Ally Bank has a 5-year CD at 2.50% APY ($25,000 minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 2 years you’d still get an 1.99% effective APY even after accounting for the penalty.
  • Connexus Credit Union has a 5-year Share Certificate at 3.00% APY ($5,000 minimum deposit) with a 365-day early withdrawal penalty $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee. I ran a Ally vs. Connexus 5-year CD comparison to show the effect of a larger early withdrawal penalty. Note that Ally rates have risen a bit since that post was published.

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

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.85% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, currently CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 2/4/18.

Filed Under: Banking, Deals & Offers, Investing, Treasury Bills and Bonds //

Debitize: Will Making Your Credit Card Feel Like Debit Help You Budget? ($10 Bonus)

Posted on January 23, 2018 // 2 Comments

debitizeappIn our increasingly cashless world, I prefer to use credit cards over debit cards for a few reasons:

  • Credit cards usually have better cash back, points, or rewards programs.
  • Credit cards have additional features like free checked bags, extended warranties, and price drop protection.
  • Credit cards have more consumer protections explicitly required by federal law.
  • Having a certain amount of revolving credit card usage with a good payment history improves your credit score.

A major benefit of debit cards is that it feels more like “cash”, so it can be easier to control your spending. When you make a debit card purchase, your bank balance is immediately reduced so you know much money you have left. If this helps your manage your cashflow, it can help you avoid credit card debt. Indeed, if you try to buy something with a debit card and your bank account has a zero balance, the purchase will be rejected (depending on your specific settings, some banks allow small overdrafts).

debitize1

Debitize is a new start-up that makes your existing credit card feel more like a debit card. I had no idea this was a thing. Apparently they were profiled by the NY Times. Basically, you link up both your credit card and bank account, and they will match up your credit card purchases and take the same amount out of your checking account on a daily basis (weekdays). The money accumulates in your Debitize Reserve Account, and then they pay off your credit card bill when it is due each month.

We initiate withdrawals once a day on weekday mornings. Typically it takes one more day to hit your checking account. So if you go to the movies on Tuesday night, we’ll initiate the withdrawal on Wednesday morning and you will see the funds out of your checking account on Thursday.

You keep your existing credit card. This means you get to keep all the credit card perks like cash back, airline miles, hotel points, free checked bags, etc. You can still do credit card fraud disputes, refunds, etc.

You keep your existing bank account. You can set a minimum balance that Debitize will never go below so you won’t get hit with any overdraft or low-balance fees, or you may want a buffer for some other reason. Debitize will send you an alert if you hit this minimum balance.

Debitize has a freemium pricing model. The basic functionality is free. They take money out your bank account daily, but only pay the credit card company once a month at the due date. There is also a $3/month Credit Optimizer tier that pays off your credit card balance once every week so that your credit utilization ratio is lower and thus your credit score is higher.

My take? I can see why people would want this feature. Credit card perks. Free. I think Debitize is best for folks that have a handle on their debt, but prefer the feel of debit cards for better day-to-day budgeting.

I think the primary drawback is the added complexity. If someone has problems with credit card balances, they might do better with more simplicity. Focus on paying down that debt. Stick with the plain debit card with no rewards (and no option to carry a balance). In fact, one might go all the way back to physical cash where possible.

Debitize is offering a $10 credit for new customers towards your credit card bill. You must wait until at least 5 automated withdrawals from your checking account have been processed. I am a member of their affiliate program and will also receive a referral fee if you qualify for this bonus.

$10 credit will be applied to your Debitize account and paid towards your credit card bill as long as you have been active long enough to have at least five automated withdrawals. We really just want you to give us a real try — if you do and don’t think Debitize is for you, just shoot us a note.

Filed Under: Banking, Credit Cards, Deals & Offers //

Connexus Credit Union 5-Year CD at 3.00% APY: Early Withdrawal Penalty Comparison

Posted on January 17, 2018 // 4 Comments

percentage2Connexus Credit Union has raised the rates on their 5-year Share Certificate to 3.00% APY with a 365-day early withdrawal penalty. They also have 1-year Share Certificate at 2.01% APY (90-day early withdrawal penalty). Both have a $5,000 minimum deposit. Anyone can join this credit union via partner organization Connexus Association for a one-time $5 fee.

It’s nice to see a 5-year CD hit 3% APY again, but the main drawbacks are that (2) rates may continue rising and (2) a year of lost interest is a significant early withdrawal penalty. To help illustrate this, I ran a comparison with the Ally Bank 5-year CD with a shorter 150-day early withdrawal penalty. The Ally CD is currently paying 2.30% APY with a $5,000 minimum deposit, so I will use that as the comparison rate. (You can also get 2.35% APY with $25,000+.)

con_ally_cd

As you can see, the penalty makes a big difference. Even if you make an early withdrawal at the last possible moment (59 months), you will never get anything higher than 2.39% APY.

If you do end up having to make an early withdrawal, the Ally CD with a smaller penalty will actually net you more money up until about 36 months. After 36 months, the Connexus 5-year wins out. For periods shorter than about a year, the likely best option is to just keep your money in a liquid online savings account. If you think rates will stay higher, you could also buy a 1-year CD and hope to roll it over.

Bottom line. If you’ve been waiting for 3% and/or you’re building a ladder of 5-year CDs where you are confident you won’t have to break it early, this Connexus certificate is currently a top rate and should be considered. Just be aware of the sizable early withdrawal penalty.

Filed Under: Banking //

Best Interest Rates on Cash – January 2018

Posted on January 7, 2018 // 21 Comments

percentage2

Short-term interest rates are rising. Megabanks make billions by pay you nothing for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. Check out my Ultimate Rate-Chaser Calculator to get an idea of how much additional interest you’d earn if you switched over. Rates listed are available to everyone nationwide. Rates checked as of 1/7/18.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are a number of online savings accounts offering much higher rates. Keep in mind that with savings accounts, the interest rates can change at any time.

  • DollarSavingsDirect at 1.60% APY, CIT Bank at 1.55% APY, both with no minimum balance requirement. SalemFiveDirect 1.50% APY, Synchrony Bank 1.45% APY, GS Bank 1.40% APY.
  • I currently keep my “hub” account at Ally Bank Savings + Checking combo due to their history of competitive rates, 1-day external bank transfers, and overall user experience. I then move money elsewhere if the rate is significantly higher (and preferably locked in via CD rate). The free overdraft transfers from savings allows to me to keep my checking balance at a minimum. Ally Savings is now lagging a bit at 1.25% APY.

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

  • Vanguard Prime Money Market Fund currently pays an 1.38% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.23%. 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 1.83% SEC Yield ($3,000 min) and 1.93% SEC Yield ($50,000 min). The average duration is 1 year.
  • 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 1.81% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

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 short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 11-Month No-Penalty CD is at 1.55% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise. Full review. You can open multiple CDs in smaller increments if you want more flexibility.
  • Ally Bank No-Penalty 11-Month CD is paying 1.60% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. Similar product, higher rate at the moment, higher balance requirement. Ally is a full-featured bank with checking/savings/etc.
  • Synchrony Bank has a 12-month CD is at 2.00% APY with a $2,000 minimum deposit. (Ally Bank had a similar rate that ended on 1/2/18, so I don’t know how long the Synchrony rate will last either.)

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 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

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

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.
  • Note: Northpointe Bank, mentioned previously, no longer has their Rewards Checking account on their website and is not accepting new applications. Unclear how long existing accountholders will be grandfathered. That’s just how it goes with these types of accounts.

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

  • Advancial Federal Credit Union has their 18-month CD at 2.05% APY ($50k min) and a 24-month CD at 2.14% APY ($50k min). The early withdrawal penalty is 180 days of interest. Anyone can join with a $5 membership fee to the Connex Professional Network.
  • Ally Bank has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Northern Bank Direct has a 4-year CD at 2.51% APY with a $500 minimum. I had to mention this top rate, but watch out for the huge early withdrawal penalty of 3-years of interest! Hanscom Federal Credit Union still has their 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • United States Senate Federal Credit Union has a 60-Month Share Certificate at 2.76% APY ($60,000+), 2.70% APY ($20,000+), and 2.63% APY ($1,000+). Anyone can join this credit union via partner organization American Consumer Council for a one-time $10 membership fee. (ACC lets you become eligible for multiple credit unions.)

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. (The yield curve has been flattening in recent months.)

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.75% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, currently CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty, so I avoid it. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years.

All rates were checked as of 1/7/18.

Filed Under: Banking, Deals & Offers, Investing, Treasury Bills and Bonds //

MMB Ultimate Interest Rate Chaser Calculator

Posted on December 14, 2017 // 34 Comments

calc150Thinking about moving your cash to a different bank account with a higher interest rate? It’s been a while, but the short-term rates on online savings accounts are going up. Don’t get paid nothing by your megabank. Use this handy calculator to find out how much more money you could earn by switching, which you then can weigh against the time and effort required.

My Money Blog Ultimate Rate Chaser Calculator

How much money are you going to move? (no commas) $
Enter the interest rate (APR) currently being earned:   %
Enter the new interest rate (APR):   %
How many days of lost interest will you have?   day(s)
The approximate number of days you must keep your money at the new rate to break even money-wise is:   days
Assuming the rate difference remains the same,
in 1 month you’ll have earned an extra (estimated):		   
After 6 months, you’ll have earned an extra (estimated):   

Notes

  1. This calculator is based on a rate-chasing breakeven time formula developed previously which takes into account the “days of lost interest”, or the time in between transfers where the money is not earning interest in either account.
  2. Although you will get a very similar answer either way (especially for low interest rates), note that it asks for APR, not APY. I also made a APY to APR calculator if you only have APY and want to be exact.
  3. Usually, there can be between 0-3 days of lost interest when going from one bank to another. This depends on the policies of either bank and also which bank initiates the transfer. This value can significantly affect the break-even time.
  4. The 6-month value (182 days) isn’t simply 6 times the 1-month value (30 days), as the calculator takes into account the time needed first to “break-even”.
  5. Another factor to consider is how likely the current rate difference will persist. Interest rates on savings accounts can change at any time, whereas certificates offer a fixed rate over the guaranteed period.

Last updated 12/14/17.

Filed Under: Banking, Tools & Calculators //

Best Interest Rates on Cash – December 2017

Posted on December 3, 2017 // 13 Comments

percentage2

Short-term interest rates are rising. Don’t let a megabank pay you nothing for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. You could also use this information to make a bank CD ladder to replace bonds. I focus on rates that are nationally available to everyone (not restricted to certain geographic areas or specific groups). Rates checked as of 12/1/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are many online savings accounts offering competitive rates clustered around 1.1%-1.3% APY. Keep in mind that with savings accounts, the interest rates can change at any time.

  • Top rates: Incredible Bank at 1.55% APY (minimum $25,000). DollarSavingsDirect, SalemFiveDirect, and Redneck Bank/All America Bank (max balance $35k) all paying 1.50% APY.
  • More rates from banks with solid history of competitive rates: CIT Bank at 1.35% APY up to $250k. Synchrony Bank and GS Bank are at 1.30% APY.
  • I’ve experienced the “bait-and-switch” of moving to a new savings account only to have the rate lowered quickly afterward. Until the rate difference is huge, I’m sticking with a Ally Bank Savings + Checking combo due to their history of competitive rates (including CDs), 1-day interbank transfers, and overall user experience. (I will jump on CDs as the rate is locked in.) I also like the free overdraft transfers from savings that let’s me keep my checking balance at a minimum. Ally Savings is at 1.25% APY.

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. It may be worth the effort to move your idle cash into a higher-yielding money market fund or ultrashort-term bond ETF. The following bond funds are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free commissions, it may be worth a look.

  • Vanguard Prime Money Market Fund currently pays an 1.20% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 1.07%. 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 1.71% SEC Yield ($3,000 min) and 1.82% SEC Yield ($50,000 min). The average duration is 1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.59% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.68% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

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 standard advice is to keep things simple. If not a savings account, then put it in a short-term CD under the FDIC limits until you have a plan.

  • CIT Bank 11-Month No-Penalty CD is at 1.55% APY with a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise. You can even jump ship to another 11-month CD (details).
  • Ally Bank No-Penalty 11-Month CD is paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. If you want a full-featured bank with checking/savings/etc.
  • GS Bank has a 12-month CD is at 1.65% APY with a low $500 minimum. For sizeable balances, Advancial Federal Credit Union has a 6-month CD at 1.75% APY ($50k min) and a 12-month CD at 1.90% APY ($50k min). If you don’t otherwise qualify, you can join with a $5 fee to Connex Professional Network and maintaining $5 in a Share savings account.

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 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Consumers Credit Union offers up to 4.59% APY on up to a $20k balance, although getting 3.09% APY on a $10k balance has a much shorter list of requirements. The 4.59% APY requires you to apply for a credit card through them (other credit cards offer $500+ in sign-up bonuses). Keep your 12 debit purchases small as well, as for every $500 in monthly purchases you may be losing out on 2% cashback (or $10 a month after-tax). Find a local rewards checking account at DepositAccounts.
  • Note: Northpointe Bank, mentioned previously, no longer has their Rewards Checking account on their website and is not accepting new applications. Unclear how long existing accountholders will be grandfathered. That’s just how it goes with these types of accounts.

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 cushion. Buying finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Advancial Federal Credit Union (see above) has their 18-month CD at 2.01% APY ($50k min) and a 24-month CD at 2.10% APY ($50k min). The early withdrawal penalty is 180 days of interest.
  • Ally Bank has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Mountain America Credit Union has a 5-year Term Deposit CD at 2.80% APY ($500 minimum) with a 365-day early withdrawal penalty. They also offer the same rate on a “Term Deposit Plus” certificate which allows you to add more money later, but also requires a monthly $10 auto-deposit. Anyone can join this credit union via partner organization American Consumer Council for a one-time $5 fee.

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

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.65% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view 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. Too long for me.

All rates were checked as of 12/1/17.

Filed Under: Banking, Deals & Offers, Investing, Treasury Bills and Bonds //

Best Interest Rates on Cash – November 2017

Posted on November 1, 2017 // 13 Comments

percentage2

Interest rates are slowly inching upwards. Don’t let a megabank pay you 0.01% APY or less for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. I focus on rates that are nationally available to everyone (not restricted to certain geographic areas or specific groups). Rates checked as of 11/1/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are many online savings accounts offering competitive rates clustered around 1.1%-1.3% APY. Remember that with savings accounts, the interest rates can change at any time.

  • Top rates: DollarSavingsDirect at 1.50% APY. SalemFiveDirect at 1.50% APY. Redneck Bank and All America Bank (they are affiliated) having Mega Money Market accounts paying 1.50% APY on balances up to $35,000.
  • More rates from banks with solid history of competitive rates: CIT Bank at 1.35% APY up to $250k, Synchrony Bank at 1.30% APY, GS Bank at 1.30% APY, and UFB Direct at 1.41% APY ($5k min).
  • I’ve experienced the “bait-and-switch” of moving to a new bank only to have the rate lowered quickly afterward. Until the rate difference is huge, I’m sticking with a Ally Bank Savings + Checking combo due to their history of competitive rates (including CDs), 1-day interbank transfers, and overall user experience. I also like the free overdraft transfers from savings that let’s me keep my checking balance at a minimum. Ally Savings is at 1.25% APY.

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 inched upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF. The following bond funds are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free commissions, it may be worth a look.

  • Vanguard Prime Money Market Fund currently pays an 1.13% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 0.99%. 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 1.57% SEC Yield ($3,000 min) and 1.68% SEC Yield ($50,000 min). The current average effective duration is 1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.54% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.62% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

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 standard advice is to keep things simple. If not a savings account, then put it in a short-term CD under the FDIC limits until you have a plan.

  • Ally Bank No-Penalty 11-Month CD is paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. The CIT Bank 11-Month No-Penalty CD is at 1.45% APY with a lower $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise.
  • GS Bank’s 12-month CD is at 1.65% APY with $500 minimum. For sizeable balances, Advancial Federal Credit Union has a 6-month CD at 1.72% APY ($50k min) and a 12-month CD at 1.87% APY ($50k min). If you don’t otherwise qualify, you can join with a $5 fee to Connex Professional Network and maintaining $5 in a Share savings account. Via DepositAccounts.

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 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Northpointe Bank has Rewards Checking at 5% APY on up to $10k. The requirements are (1) 15 debit card purchases per month (in-person or online), (2) enrolling in e-statements, and (3) a monthly direct deposit or automatic withdrawal of $100 or more. ATM fees are rebated up to $10 per month.

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 cushion. Buying finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Advancial Federal Credit Union (see above) has their 18-month CD at 1.96% APY ($50k min) and a 24-month CD at 2.04% APY ($50k min). The early withdrawal penalty is 180 days of interest.
  • Ally Bank also has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Mountain America Credit Union has a 5-year Share Certificate rate at 2.60% APY ($5 minimum) with a 365-day early withdrawal penalty. Anyone can join this credit union via partner organization American Consumer Council for a one-time $5 fee.

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

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.65% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view 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. Too long for me.

All rates were checked as of 11/1/17.

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

Savings I Bonds November 2017 Update: 0.1% Fixed, 2.48% Variable Interest Rate

Posted on November 1, 2017 // 16 Comments

sb_poster

Update 11/1/17. The fixed rate will be 0.1% for I bonds issued from November 1, 2017 through April 30, 2018. The variable inflation-indexed rate for this 6-month period will be 2.48% (as was predicted 😉 ). The total rate on any specific bond is the sum of the fixed and variable rates. See you again in mid-April 2018 for the next early prediction.

Original post 10/15/17:

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 a replacement for cash reserves (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 2017 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 2017 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate Component
March 2017 CPI-U was 243.801. September 2017 CPI-U was 246.819, for a semi-annual increase of 1.24%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.48%. 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.

Purchase and Redemption Timing Reminders
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 2017
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 1.96% for the next 6 months, for a total 0.00 + 1.96 = 1.96%. For the 6 months after that, the total rate will be 0.00 + 2.48 = 2.48%.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2017 and sell on October 1, 2018, you’ll earn a ~1.76% 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 ~1.91% annualized return for a 14-month holding period (assuming my math is correct). Compare with the current best bank interest rates.

Buying in November 2017
If you buy in November, you will get 2.48% plus an unknown fixed rate for the first 6 months. The fixed rate is likely to be zero or 0.1%. (Current real yield of 5-year TIPS is ~0.20%.) Every six months, your rate will adjust to the fixed rate plus a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If haven’t bought your limit for 2017 yet, I don’t feel strongly one way or the other. If you like the idea of locking in a rate of return for the next 12 months that is a bit better than current CD rates, buy in October. If you think inflation will go up soon, buy in November. Your November fixed rate might be also be bumped up a tiny bit to 0.1%.

Existing I-Bonds and Unique Features
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 + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Over the years, I have accumulated a portfolio of I-Bonds with fixed rates varying from 0% to over 1%, and I consider it part of my 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 (see 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 //

Best Interest Rates on Cash – October 2017

Posted on October 2, 2017 // 7 Comments

percentage2

Interest rates are slowly waking up from their multi-year slumber. Don’t let a megabank pay you 0.01% APY or less for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. I focus on rates that are nationally available to everyone (not restricted to certain geographic areas or specific groups). Rates checked as of 10/2/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are many online savings accounts offering competitive rates clustered around 1.0%-1.2% APY. Remember that with savings accounts, the interest rates can change at any time.

  • The Mega Money Market accounts of both Redneck Bank and All America Bank (they are affiliated) are paying 1.50% APY on balances up to $35,000. Note that amounts over $35,000 earn only 0.50% APY.
  • Other sample top rates: DollarSavingsDirect at 1.40% APY, CIT Bank at 1.35% APY up to $250k, Synchrony Bank at 1.30% APY, Goldman Bank at 1.20% APY, and UFB Direct at 1.41% APY ($5k min).
  • I’ve experienced the “bait-and-switch” of moving to a new bank only to have the rate lowered quickly afterward. Until the rate difference is huge, I’m sticking with a Ally Bank Savings + Checking combo due to their history of competitive rates (including CDs), 1-day interbank transfers, and a overall user experience. I also like the free overdraft transfers from savings that let’s me keep my checking balance at a minimum. Ally Savings is at 1.20% APY.

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 inched upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF.

  • The Vanguard Prime Money Market Fund currently pays an 1.12% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 0.98%. 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 1.46% SEC Yield ($3,000 min) and 1.57% SEC Yield ($50,000 min). The current average effective duration is 1.0 years.
  • The following bond ETFs are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free trades, it may be worth a look. The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.58% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.60% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

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 standard advice is to keep things simple. If not a savings account, then put it in a short-term CD under the FDIC limits until you have a plan.

  • Ally Bank No-Penalty 11-Month CD is paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. The CIT Bank 11-Month No-Penalty CD is at 1.45% APY with only a $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise.
  • Advancial Federal Credit Union has a 6-month CD at 1.63% APY ($50k min) and a 12-month CD at 1.78% APY ($50k min). If you don’t otherwise qualify, you can join with a $5 fee to Connex Professional Network and maintaining $5 in a Share savings account. Via DepositAccounts.

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

  • “I Bonds” bought between May and October 2017 will earn a 1.96% rate for the first six months, and then a variable rate based on ongoing inflation after that. While that next 6-month rate is currently unknown, at the very minimum the total yield after 12 months will around 1% with additional upside potential. More info here.
  • In mid-October, 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 high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Northpointe Bank has Rewards Checking at 5% APY on up to $10k. The requirements are (1) 15 debit card purchases per month (in-person or online), (2) enrolling in e-statements, and (3) a monthly direct deposit or automatic withdrawal of $100 or more. ATM fees are rebated up to $10 per month.

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 cushion. Buying finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Advancial Federal Credit Union (see above) has increased their rates a bit since last month, with their 18-month CD at 1.96% APY ($50k min) and a 24-month CD at 2.04% APY ($50k min). The early withdrawal penalty is 180 days of interest.
  • Ally Bank also has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Mountain America Credit Union has a 5-year Share Certificate rate at 2.60% APY ($5 minimum) with a 365-day early withdrawal penalty. Anyone can join this credit union via partner organization American Consumer Council for a one-time $5 fee.

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

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.65% APY (Watch out for higher rates from callable CDs.) Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view 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. Too long for me.

All rates were checked as of 10/2/17.

Filed Under: Banking, Deals & Offers, Treasury Bills and Bonds //

Practical Advice on Identity Theft and Removing Unauthorized Accounts

Posted on September 27, 2017 // 6 Comments

bankshowerThe boilerplate advice I keep reading at the end of every article about the Equifax hack is… Everybody freeze their credit! That certainly is an option, but perhaps it might be overkill to expect 150 million people to do that? The credit reporting agencies seem to make it an painful experience on purpose, charging you $10 a pop x 3 bureaus for freezing/thawing. Some good news: Equifax just announced a new free instant lock/unlock feature, which probably wouldn’t have happened if it wasn’t for this breach.

For a more practical perspective, I recommend bookmarking the post Identity Theft, Credit Reports, and You by Patrick McKenzie. He has real-world experience in helping others deal with the credit bureaus and navigating the Fair Credit Reporting Act (FCRA). My notes:

  • You don’t need to do anything just because your data was leaked or might have been leaked and nothing has actually happened.
  • Don’t pay money for credit monitoring.
  • If you find unauthorized charges on an credit card you opened yourself, just call your bank or card issuer. This shouldn’t be a big headache.
  • If you find an account NOT opened by yourself, either due to fraud or some sort of clerical error, then read the entire post for detailed instructions. You need to create a paper trail because this could easily turn into a big headache.

A lot of nuance is covered and sample text is helpfully included, such as:

On August 5th, 20XX I accessed my credit report from Experian, numbered 1234567. It shows an account with your institution in my name, with account number XXX123. I am unaware of the full account number. I have no knowledge of this account. I did not open it or authorize anyone to open it.

Please correct this tradeline and confirm this to me in writing within the timeframe specified by law. If you cannot correct this tradeline, provide me with your written justification for why your investigation concluded that this tradeline was accurate.

Here are some important things to note if you have to deal directly with a financial institution regarding an unauthorized account:

  • Do not call. Communicate only via written letters sent by postal mail to their official address. Create a paper trail. Keep a scan/copy of everything.
  • Never pay debt which isn’t yours, even if you are being harassed.
  • Never speak to debt collectors on the phone, either. Just ask for their address and hang up so you can communicate in writing. You are not breaking any laws if you hang up on them.
  • You can do this. In his experience, most issues were resolved after 2-3 letters send via certified mail/return receipt.

Filed Under: Banking, Credit Cards //
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