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lemoneater (88.51)

The Lowdown on High Yield Savings and High Yield CDs.

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January 13, 2011 – Comments (22) | RELATED TICKERS: SCHW , AMTD

I just had a reminder this morning why I invest as much as I safely can in stocks.

We will probably need to use a certain portion of our savings in 2 to 4 years for some upcoming costs. I believe that $13,000 we've put aside is making about .10% APY in our regular savings at Carolina First--pathetic! (Carolina First was recently purchased by TD Ameritrade.) We could make 1.10% if we kept $10,000 minimum balance in a high yield account with that bank, but I want more flexibility than that. Whatever I do needs to be FDIC insured so the principal will not be lost.

I have a high yield acct with Schwab that requires no minimum but gives .55% APY so that sounds like a better option, but still shockingly low for a yield. I'm considering Schwab CD's which have no extra fees and are FDIC insured, but I don't even start to see a .85% APR unless I get a 2 year CD which doesn't appear to reinvest interest or compound it. Evidently APY and APR are not the same.

Does anyone know of a better high yield than I've found that doesn't require a $10,000 minimum that is FDIC insured? Even a $5000 minimum would be okay.

If it weren't for my desire to have this portion of our savings have zero volatility, I think could make a better return buying undervalued, improperly indentified Depression Glassware and reselling it on e-Bay with proper provenance and pricing closer to actual value.

My husband's first savings account gave him 5.95% interest. Any indication on whether interest rates will rise anytime soon?

22 Comments – Post Your Own

#1) On January 13, 2011 at 1:09 PM, engstocker (< 20) wrote:

There are some small but FDIC insured banks that offer 3.25% + interest checking accounts. They usually pay that interest up to 25,000 or so. Just start googling small banks in your area and you should find one.

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#2) On January 13, 2011 at 1:23 PM, lemoneater (88.51) wrote:

Thanks, engstocker. I need to do some more looking around.

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#3) On January 13, 2011 at 1:24 PM, rd80 (99.10) wrote:

I wrote an article last year summarizing some places to park cash.  The best rates were on-line accounts and even those were only a bit above 1%.  However, most had no minimum balance and were FDIC insured.

Link

I doubt there have been many changes since I wrote it.  I have an ING Direct savings account and it's still about 1.1% and is FDIC insured.  I don't believe there's a minimum balance.

Savings and money market rates are going to stay pinned down in the 'naught point not much' range until the Fed starts bumping short term rates back up.  I don't see that happening anytime soon. 

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#4) On January 13, 2011 at 1:36 PM, Schmacko (91.84) wrote:

I'm not sure there really is such a thing as high yield savings accounts (In America at least).  Any major bank (think Bank of America, and Wells Fargo) is going to have terrible interest rates, with higher minimums and probably more associated fees.  The truth is banks aren't in the business of growing your money and what they're really offering you is convenience. 

I was interested in this topic fairly recently and did a search of the interest rates for savings and CDs offered by various banks in my area.  I looked at majors, credit unions, small banks, and USAA (because I have money there and I wanted to see how they compared) about 10 total.  Bank of America was by far the worst I found.  I have a wachovia (WFC) account and they really are pretty woefully unimpressive as well.  That being said I've had nothing but good customer service from wachovia nad that counts for a lot with me.

The smaller banks and credit unions had better rates (I looked specifically at Cardinal Bank, one other small bank I can't remember, Tower Federal Credit Union, Pentagon Federal Credit Union, and Navy Federal Credit Union) and they usually had $1000 CD minimums.  You usually hit 1%+ APR around the 14 month mark.  My one experience with belonging to a credit union was while I was in college and was fairly negative, though it wasn't any of the three listed, and I was so poor at the time that things like CD and savings rates were not even on my radar.

I liked USAA's rates the best, I only saw one Credit Union offer slightly better savings rates, but USAA operates on tiered system and at higher tiers the USAA rate is equal to or better than the best of the three Credit Unions I looked at.  Everything else was pretty even or better at USAA.  My USAA savings rate is .35%, which while terrible is way better than the .05% I get from Wachovia.  USAA also tends to give out subscriber dispersements (kinda like getting a cash dividend) based on the amount of business you do with them.  For example this year they direct deposited $35 into my account... while you might say that's not much money I can count on exactly 0 fingers the amount of non interest money wachovia has given me over the many years I've been a customer with them.

The downside of USAA is that it doesn't have any physical locations (at least not in my area that I know of) and it's only open to military members (current and former) and their families.

I'd probably do business with Cardinal or another small bank if not a member.

Truthfully though savings accounts are mostly a waste of time.  The only real reason to have them is for emergency money or because you have so much cash you just don't know where to park it all.  CDs currently fall in the same boat.  The main reason I own CDs at the moment is because I want my savings to at least earn me a little cash.

Interest rates are all based on the Fed's rate and the Fed has to raise rates in the future since it really can't lower them any more.  When they do expect to see CD rates go up (they've still been slowly declining from what I've noticed recently) and savings accounts... to not do to much.  I don't expect savings accounts to even get up to 1% anytime soon.

 

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#5) On January 13, 2011 at 2:00 PM, lemoneater (88.51) wrote:

@ #3 Thanks for the informative article about yields on cash, Russ. Wanting something FDIC insured does limit my options. A relative has an account with ING I should ask him about it.

It seems like the rates are much worse than even last year. I'm taking engstocker's advice to check out local banks, but some of them don't even state a rate for their high yield on their website which is ominous.

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#6) On January 13, 2011 at 2:52 PM, Schmacko (91.84) wrote:

I looked at ING Direct and something just seems off about them.  They still advertise a 1.1% savings account APR however that hasn't been updated since April 2010 and 1.1% is a better rate than their 6, 9, 12, and 18 moth CD rates, which makes no sense.

Ally bank from rd's article is offering 1.09% interest savings currently, which is down from what's listed there, but the articel looks like it was from last year.

I always hear people talk about about banks that pay 3% plus but I've never found any examples... at least not recently.  The best I've seen are online banks that have teaser rates and then some kine of savings tiered system and even then the regular rate is between .5 and 1ish%

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#7) On January 13, 2011 at 2:52 PM, lemoneater (88.51) wrote:

@ #4 Thanks for your reply, schmacko. Well USAA is not an option for me. I don't think they count great uncles who were bombers in World War II as a close enough relationship to qualify :).

There are some credit unions I see every day on our way to work so maybe I should check them out.

If I find anything really good, I will let you all know!

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#8) On January 13, 2011 at 2:56 PM, lemoneater (88.51) wrote:

@ #6 Yes, I'm finding conflicting information on websites. I don't think banks update them frequently enough. I've found some advertised 3% but that's from cached sites with 09 dates so far.

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#9) On January 13, 2011 at 7:48 PM, rd80 (99.10) wrote:

@6 - Yes, the article is from nearly a year ago. 

Not much has changed at the short end of the yield curve, so I don't expect much has changed.  A few spot checks:

ING Direct's savings account yield is 1.10%.  It's been there for quite a while.  No minimum, no fees and FDIC insured. 

American Express is advertising 1.30% with no minimum, no fees and FDIC insurance. 

Ally Bank showing 1.09% with no minimum no fees and FDIC insurance.

Sallie Mae has 1.30% with no minimum no fees and FDIC insurance.

Those are all within a few basis points of what I found last year.

I didn't check them all, but CD rates below the savings account rate was common.  I don't have a good explanation for that.  One exception, Sallie Mae CDs had higher rates than the savings account.

If there's interest (no pun intended), I'd be willing to update last year's article.  But, based on the spot check and no significant changes to the short end of the yield curve, I doubt there would be any meaningful difference in the results.

Disclosure:  I have an account with ING Direct, but no business relationship or stock in any of the companies listed.

 

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#10) On January 13, 2011 at 8:36 PM, anchak (99.84) wrote:

The simple reason for CD rates to be lower - is because the 1.1 % ( APY) rather than the accrual rate ....is Variable - while the CD rate is locked.

ING, HSBCDirect, Amex - are all good options - and all are FDIC insured

 

To figure out who is giving what - go to www.bankrate.com

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#11) On January 13, 2011 at 10:04 PM, Option1307 (30.48) wrote:

Does anyone know of a better high yield than I've found that doesn't require a $10,000 minimum that is FDIC insured?

I've used FNBO for years and love the service and yield.

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#12) On January 14, 2011 at 12:03 PM, lemoneater (88.51) wrote:

@ #11 Thanks for the link, Option, the $500 minimum balance, but 1.10% APY makes this internet banking with First National Bank of Omaha the most attractive option I've seen yet.

I gave this blog a rec for all the helpful comments I've gotten.

Just this morning my husband forwarded me an e-mail offer he got from Capital One for 1.25 APY and a 10% bonus. It looked fantastic until I read the small print. I'd have to keep a $10,000 balance and do at least one credit card transaction a month. We mostly use credit cards for airline flights and very large purchases we have money for, but want to delay payment on to help cash flow in our budget. We don't use credit cards every month and I don't want to have to.

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#13) On January 14, 2011 at 12:04 PM, RonChapmanJr (98.49) wrote:

I use Emigrant Direct and have never had any problems.

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#14) On January 14, 2011 at 12:15 PM, MaxTheTerrible (92.37) wrote:

I use Discover online savings account for parking my cash, which pays 1.25% currently. You only need $500 to open.

Cheers!

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#15) On January 14, 2011 at 1:11 PM, Schmacko (91.84) wrote:

"The simple reason for CD rates to be lower - is because the 1.1 % ( APY) rather than the accrual rate ....is Variable - while the CD rate is locked."

Variable rates are usually based around the Fed Discount or Fed Funds rate and with both of those interest rates at or near rock bottom lows I can think of no possible incentive to lock in a CD at a rate lower than your savings account's interest rate.

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#16) On January 14, 2011 at 3:02 PM, lemoneater (88.51) wrote:

@ #15 I agree. I don't see the advantage of a CD in this particular situation. Even 5 year CDs didn't have a great rate.

Yesterday after I shared my initial findings with my husband, he asked me how much I was currently making with our stock portifolio. I said 17% after selling two losers.

He is thinking about giving me $5000 to invest more cautiously than the rest of my portifolio. By tapping into dividend power, I think I can probably still give him a 3-5% APY even with leaving high beta stocks alone and allowing that a pick might have share price depreciation.

 

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#17) On January 14, 2011 at 3:08 PM, lemoneater (88.51) wrote:

When I was checking out some well loved low beta stocks like GIS (My husband eats fruit rollups every day for lunch), I found the following article which I enjoyed. http://www.fool.com/investing/beginning/2011/01/12/3-ways-scared-savers-can-tiptoe-into-stocks.aspx?source=itxsitmot0000001&lidx=3 It made me laugh when the author referred to the 1% interest rate on savings.

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#18) On January 17, 2011 at 12:25 PM, lemoneater (88.51) wrote:

@ #10 Thanks for your explanation on why CD rates are generally lower. Also thanks for the helpful comparison link. 

@ #13 I had never heard about Emigrant Direct before. Evidently it got its start in the 1920's helping the Irish emigrants start saving. That is a long history for a bank to have. Very interesting!

@ #14 Thanks for the info about Discover. It seems like a lot of the credit card companies also have high yield banking. It is evidently better than Capital One!

With everyone's feedback, I feel very prepared to make an informed decision on where to park my cash. You are the best!

 

 

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#19) On January 24, 2011 at 12:53 PM, ease1 (74.88) wrote:

Here is a strategy I was considering last year.  Sort of along the same subject line:

 

http://caps.fool.com/Blogs/dividends-vs-bank-savings-rate/351811

 

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#20) On January 25, 2011 at 12:33 PM, lemoneater (88.51) wrote:

Thanks for your helpful blog, ease1. I plan to leave at least $5000 of the savings untouched to keep it very liquid, but the rest I will probably put in "boring" dividend stocks.

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#21) On January 25, 2011 at 9:25 PM, ease1 (74.88) wrote:

No problem.  Let me know how you do.  I'm still waiting to take the plunge on this one.  Not for lack of will, just been too busy.

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#22) On January 26, 2011 at 12:04 PM, lemoneater (88.51) wrote:

Right now some equities I'm interested in seem a little high for me to open a new position so I'm waiting also.

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