High Yield Savings Rates on the Decline

AMEX high yield savings just lowered their rate to 0.6%, PenFed is down to 0.7%.  It seems like a race to the bottom.  I may look into laddering CD's now as I think these rates will be low for a couple of years.  Any other ideas?

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  • I'm still laddered (5x5 yr terms). I'll probably be very unhappy when the next one renews (next May).

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    • Scott
    • In the beginning the budget was created. This has made many people very angry and has widely been regarded as a bad move
    • Scottgoeshiking
    • 1 mth ago
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    I checked cd rates recently and they're down several times below where they were 2 years ago. Not much better than high yield savings unless you're putting a lot into them or saving over many years. 

    I think ultimately it depends what the money is for. Laddering suggests an emergency fund, so if that's the use, you'll likely lose to inflation over the next few years.

    I'd love to hear if anyone knows of another investment vehicle that can keep up with inflation while also having some measure of security and the ability to access it on relatively short notice.

    Like 1
  • Scott said:
    I think ultimately it depends what the money is for. Laddering suggests an emergency fund

    To me, laddering merely suggests the expected drawdown over the next few years would not take you below $X. Don't forget, categories don't come due at the same time. With N True Expenses, it's likely that N-1 of them still have money any given month. What the money is "for" doesn't even figure into it as I see it, because money that's not in the ladder is just as good as the money that is in the ladder (again, assuming sufficient quantity such that drawdown is acceptable).

    However, I do share the desire for something that can keep up with inflation. I-Bonds should, but I think they have a no-access period. nolesrule ?

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    • dakinemaui I thought about I-Bonds and may do some of those eventually.  I just joined the Navy Credit Union and they have some what decent CD's (0.9, 1.0, 1.05, 1.1, 1.2 respectively for 1-5 yr CD).  I doubt this will even keep up with inflation.  I just looked at I-Bonds at 0% and it looks like they may even out perform CD's after you add in the inflation rate.

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      • jenmas
      • jenmas
      • 1 mth ago
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      dakinemaui I Bonds have a no access period of 1 year. After that there is a 3(?) month interest penalty if you take money out before the bond turns 5. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
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      ynaber2613 I Bonds specifically are inflation-protected. So if you are just looking to keep up with inflation then they will suffice. Rates at bank accounts tend to come down fast and then are slow to rise, so there is never a guarantee they will match or beat inflation.

      dakinemaui while they do have their withdrawal limitations, I've found they are easier to manage I Bonds than a CD ladder. Since I'm not locking up huge amounts of money, inflation protection is good enough. I reduce the 1 year risk by making monthly purchases.

      If this money weren't part of my budget, I'd probably use this money to pay down the mortgage instead. But then there would be the lack of liquidity. I guess there's always "velocity banking" 😂, but I can't figure out where people are getting first position HELOCs at a low enough rate to make it worthwhile. I'd have to store ALL of my cash in it just to break even at rate deltas vs. my conventional mortgage, and that's a risk I'm not willing to take.

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      • Scott
      • In the beginning the budget was created. This has made many people very angry and has widely been regarded as a bad move
      • Scottgoeshiking
      • 1 mth ago
      • 1
      • Reported - view

      dakinemaui what I'm familiar with when it comes to CD ladders is the idea that enough cash can be extracted from a CD in any given month to cover irregular budget variance, primarily income replacement. I wouldn't suggest CDs for much else, as other investment vehicles have higher returns. It's not so much about what categories the money is for, but liquidity and returns are managed in the overall portfolio. CDs just don't do much of value when interest rates are low. This is even more true when high yield savings allows immediate access with no penalty for a few basis points lower than a reasonably long term CD.

      I-bonds seem like a reasonable and potentially easier to manage longer term solution, but with some risk during the first year.

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 1 mth ago
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    Good topic.

    One thing I did was move some cash into a commercial real estate REIT that's historically returning approximately 10% called Streitwise. This is a long-term investment in the vein of a CD. You can't take any out in the first year and there are penalties for taking funds until 5 years have passed. However, unlike a CD, it's not guaranteed. There's always more risk, the higher the return.

    I'd like to pick nolesrule brain about tax-free bonds versus a dividend producing stock in a taxable account. I'm in California so I'm currently invested in VCADX (Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares). Any thoughts on this versus a high dividend producing stock like 3M? I suppose it comes down to risk versus reward like most things.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
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      Superbone It's definitely the risk factor in any single stock. One of the reasons I use broad market indexes is because of single stock risk. Think Kodak, Enron, or more recently a company like GE, which while still alive is in bad shape and it's unknown if they will recover. It's hard to tell the difference between a good company and a bad one until it's too late. When a company goes bankrupt, the stock is worthless.

      If you are going to invest in stocks, you might as well make the smart play and invest for total return and not focus on dividend. Total return is capital appreciation + dividend. A company that is earning the average total return but has a high dividend has less appreciation, but you are paying taxes on the dividend. It's essentially a forced sale. What's the point of focusing on the dividend when you can always "make your own dividend" by selling appreciated stock, and pay the taxes when you sell. With this type of home-made dividend the return of capital is part of the sale so not everything is subject to taxes.

      Bonds are what they are. We're in a low interest rate environment, exacerbated because the recession. So bond funds aren't returning much of anything, just like savings accounts. I don't know much about the credit worthiness of California municipal bonds. I didn't touch New Jersey bonds, because the credit risk was pretty high in that state. I haven't looked into North Carolina since we moved.

      One of the reasons I went with I Bonds besides the inflation protection is the tax deferral. If I hold on to them until maturity, then I am likely to be in a lower tax bracket when we cash them in. If i need the money earlier, then taxes aren't all that important a consideration over the need to cash them in earlier.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 mth ago
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      nolesrule Great stuff! I'm glad I asked. Really good point about focusing on total return rather than dividends. I've definitely heard and read that before but lost focus when comparing to interest rate returns. I don't need the funds now so it makes even less sense to pay forced taxes on dividends now. It all points me back to the beginning and simplest solution: VTSAX. Thank you.

      Like 2
  • All, sorry to sound like a shill but try Yotta Savings.  It allows you to earn more interest by entering you in weekly drawings.  lol yeah sounds like a total scam huh.  It's not.  Graham Stevens even mentioned it in his youtube video and there are several articles about it.  

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    • Green Falafel This doesn't sound like a scam, but it does sound like a way to get people to sign up for 0.2% interest plus a decent chance of winning a few extra pennies, where there are other online savings accounts that currently pay 0.6%.

      Like 2
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