With interest rates> on certificates of deposit, savings and money-market accounts meager at best and some of the nation s biggest banks on shaky ground, it takes a little extra legwork to figure out the best place to safely stash your money these days.
It's going to be some slim pickings -- at least for now. [Rates are] at an all time low, says Doug Lockwood, the chief investment officer at Cornerstone Wealth Management. Banks are able to borrow from the government at an extremely low rate right now, so they have little incentive to offer better rates to individual depositors. I am seeing some slight improvement, but it s mostly hit and miss, he says.
In fact, even though Treasurys have seen a steeper yield in the past week or so, CD rates have barely budged. The average yield for a one-year CD was recently 2.07%; the average rate for a money-market account, 1.31%, and a savings account, 1.69%, according to Bankrate.com and Money-Rates.com, sites that compile data on interest rates. That's paltry compared with the 4% and 5% yields consumers could nab just a couple of years ago.
With rates at current levels, savers who lock their money in today will quickly lose ground if inflation rears its ugly head. That s the number one risk with owning CDs, says Lockwood.
So what are savers supposed to do?
Typically, the way to get more respectable rates on CDs is to buy longer-term maturities (the average yield for a five-year CD is 3.06% compared with a 1.58% yield on a six-month CD, according to Bankrate.com). But with the prospect of interest rates rising in the near future, that strategy may not make sense. Instead, buying shorter-term CDs offers you quicker access to your cash ,so when rates rise you can more promptly reinvest in a higher-rate CD. (To learn more about this strategy, read Jim Stewart s column, "The Smart Way to Save Amid Low Interest Rates Another approach is to ladder your investments by buying CDs with different maturities. That way you keep some money liquid so you can jump on rising rates and still take advantage of relatively higher rates on longer-term CDs.
When shopping around, consumers may instinctively think they can get the best deals at the big-name banks. That s a mistake, says Richard Barrington, a spokesman for Money-Rates.com. It s precisely the big, household name, type of banks that have been in the deepest trouble, he says.
Instead, check in at smaller community banks and credit unions. Some smaller banks have online rewards checking accounts that, in exchange for meeting requirements like signing up for direct deposit or making a minimum number of debit-card transactions per month, offer interest rates of as high as 3% or 4%.
Ally Bank, the online bank owned by GMAC, is currently advertising rates of 2.35% for a one-year CD and 2.05% for an online savings account. Their rates are high enough that the American Bankers Association complained to the Federal Deposit Insurance Corporation that GMAC was employing a risky financial strategy while relying on government backing. Ally has since raised its rates a bit, but only as a normal part of doing business for any bank, says Tony Sapienza, spokesman for GMAC Financial Services. We will always strive to be among the leading rates, he says.
SmartMoney searched Bankrate.com, Money-Rates.com, and CheckingFinder.com for some of the best rates around. Here's a sampling of what we found:
|Data from Bankrates.com and Money-Rates.com|
* Must open account online
|Hanmi Bank, Internet bank||2.53%||$500|
|Affinity Bank Online||2.50%||500*|
|Ally Bank, Midvale, Utah||2.34%||No minimum|
|Stonebridge Bank, Exton, Pa.||2.35%||500|
|Ascencia, Louisville, Ky.||2.34%||500|
|Minimum Deposit||Account Requirements|
|Data from Bankrate.com and Money-Rates.com|
|First Trade Union Bank||2.32%||na||$2,5000 minimum balance to earn APY|
|Doral Bank Direct||2.25%||na||$250 minimum balance to earn APY|
|Zions Bank, Salt Lake City||1.92%||$2,500||na|
|WT Direct, Wilmington, Del.||1.76%||10,000||na|
|EverBank, Jacksonville, Fla.||1.65%||1,500||$5,000 minimum balance to avoid fees|
|Data from CheckingFinder.com|
|FAB&T, Concord, Ark.||4.44%||$50,000||10 debit card purchases, 1 direct deposit or automatic payment, and one sign-in to online banking per month|
|Royal Banks of Missouri||4.30%||25,000||10 debit card purchases and 1 direct deposit or automatic payment per month|
|Liberty Bank, Godfrey, Ill.||4.25%||25,000||15 debit card purchases, 1 direct deposit, and 1 bill pay transfer per month|
|Connexus Credit Union, Wausau, Wis.||4.15%||25,000||15 check card purchases, 1 bill pay transfer and 1 direct deposit per month; also reimburses up to $25 in ATM fees per month|
|Ouachita Independent Bank, Shreveport, La.||4.01%||25,000||12 debit card purchases and 1 automatic payment or direct deposit per month|