Maximizing Rates and Yields on Savings
June 13, 2008
A growing number of financial experts and pundits have been on the airwaves advising people to keep their cash savings liquid in money funds, money markets, bond funds, savings, and checking accounts due to the forecast for higher interest rates in the future. The line of thought is that within the next year inflation concerns may create an increase in yields on mid-term and long-term US Treasuries and thus the time deposits influenced by those Treasury yields. However, today the yield curve bounces up in the 1-year, 18-month, and 2-years time period which might justify locking in +4.00% yields. If we look at a 2-year time horizon, and a saver who stays in cash for the first year - then the rates on a 1-year CD would have to increase to 6% if the investor was earning 2% in a money fund or money market or increase to 5% if the investor could find 3% - all just to match the 4% readily available on two-year CDs for that two-year time frame. The scale tips towards keeping money in cash if the time horizon is longer, but right now it might be worthwhile to grab 4% for a savings goal of one to two years. Grabbing 4% yields also insures against short-term interest rate falling again which is not economist's consensus forecast, but is also a scenario that cannot be ruled out with a weak economy and the potential for unexpected financial crises.
This week the list of online banks offering 4% yields on CDs increased to over ten, while only EverBank is offering 4.00% or higher on a money market or interest checking account. The EverBank yield is also only an introductory yield which drops after 90 days.
Today's 2-year Certificate of Deposit Rates
IndyMac Bank, 4.20% APY, minimum deposit 5K
OnBank, 4.15% APY, minimum deposit $500
Geauga Savings, 4.00% APY, minimum deposit 1K
E-Loan Bank, 4.05% APY, minimum deposit 10K
State Bank of India, 4.06% APY, minimum deposit 95K
Discover Bank, 4.02% APY, minimum deposit 2.5K
Ascencia Bank, 4.01% APY, minimum deposit $500
AmTrust Direct, 4.00% APY, minimum deposit 5K
GMAC Bank, 4.00% APY minimum deposit $500
Umbrella Bank, 4.00% APY, minimum deposit 1K
Capital One Bank, 4.00% APY, minimum deposit 5K
iGObanking, 4.00% APY, minimum deposit $500
National City Bank, 4.00% APY, minimum deposit 10K, (requires opening checking account)
Anonymous
12 August 2008 at 4:02 am
I did that with Citizens and Bank of America about 2 years ago. About 6 months ago, those rates dropped extensively during the subprime crisis. They're usually based on fluctuating daily rates. Be careful it's not just a come-on promotion.
Anonymous
15 June 2008 at 12:01 pm
I did a search on www.Checkingfinder.com and found rates of 5.01% 6.01% on reward shecking accounts on the first $25k. I also checked out the rates if someone has more money such as $50k. Top rate shown was 4.51% and 4.07% on an unlimited balance. The benefit, as I see it, is that I am able to remain liquid without locking in for 2+ years.