Best Bank Account Interest Rates - Summary for Week Ending July 9, 2011

Comments (9)
Jul 9, 2011 - 4:29 PM by Ken Tumin

The first half of the year ended with some hopeful signs of economic improvement that would lead us out of this awful interest rate environment. That trend ended yesterday with the release of the June employment report. It was much worse than had been expected, which has renewed concerns about a double-dip recession. The Fed has maintained that the weakness in the last few months will just be transitory. If we get more data like this recent jobs reports, the Fed may start viewing the slowdown as something more serious.

In short, this latest employment news is another setback for higher rates. Treasury yields fell substantially this week, and the Fed Funds futures showed a reduced chance of the Fed raising interest rates early next year. Details in Treasury yield changes and the Fed fund rate hike probabilities can be seen in the following summary which is based on bond rate data and the CME Group FedWatch.

Treasury Yields:

  • 5--year: 1.57% down from 1.78% last week
  • 10-year: 3.02% down from 3.18% last week
  • 30-year: 4.28% down from 4.39% last week
Fed funds futures' implied probability for a higher rate by:
  • Dec 2011: 10.5% down from 17.0% last week
  • Jan 2012: 14.9% down from 25.5% last week
  • Mar 2012: 19.5% down from 31.7% last week
  • Apr 2012: 27.5% down from 41.9% last week
  • Jun 2012: 32.2% down from 46.2% last week
The FDIC and NCUA were back in action this Friday. Three small banks and one credit union were closed by regulators. That brings the total number of bank failures for 2011 to 51 and the total number of credit union liquidations to 11.

Savings Account Rates

One surprise on Friday was an increase in Ally's savings and money market account rates. The APY increased from 1.04% to 1.09%. It's not much, but in this interest rate environment, any rate increase is good news. The yield had fallen to 1.00% in March where it remained until June.

FNBO Direct fell off my list when its savings account rate fell to 0.85%. That's a long way down from its heyday in 2007 when it was offering a promotional 6.00% APY. Those who still have this account may now finally be glad they held onto it. FNBO Direct emailed customers this week about a new promotion. Customers who deposit at least $50 in July, August and September will receive a promotional 1.35% APY from October 3 through March 31, 2012 on all deposits made during these 3 months. Unfortunately, it's only for existing customers. For more details about this promotion, please refer to this forum thread.

Rate Hikes:

  1. Ally Bank Savings/MMA - 1.09% (was 1.04%)

Rate Cuts:

  1. Zions Bank Internet MMA - 0.95% (was 1.01%)

Certificate of Deposit Rates

Most CD rates on my lists were pretty steady this week. There was some good news. iGObanking.com came out with new 7-year and 10-year CDs with very competitive rates: 3.10% APY for 7 years and 3.50% APY for 10 years. One nice feature of these CDs is that the early withdrawal penalty is only 6 months of interest on the principal withdrawn. However, this won't matter if the bank doesn't allow an early withdrawal. When I first reviewed these new iGObanking CDs, I showed how the online disclosure gave the bank the right to refuse an early withdrawal. Today a reader noticed that the online disclosure has changed. The sentence that allows them to refuse an early withdrawal has been removed. I updated the post with this latest change that shows the old and new disclosures.

This strategy of going long with CDs in this environment is a little controversial. As we have seen in the Fort Knox FCU CD case, banks and credit unions can throw a curveball.

With the new disclosure, at least this strategy at iGObanking will be a little safer. If you compare iGObanking's 10-year CD with Ally Bank's 5-year CD, you'll find that iGObanking would be a better choice for any early withdrawals starting at 14 months into the term. I'll have more on this soon.

With an early withdrawal penalty of only 60 days of interest, Ally Bank's 5-year CD has been a good deal for the last two years. However, one thing that has hurt Ally's 5-year CD is a rate that has slowly declined. That trend continued this week with a slight rate cut from 2.34% to 2.33% APY.

If you're worried about relying on early withdrawals if interest rates shoot up, Ally's 4-year Raise Your Rate CD is something to consider. The rate is only 34 basis points less than the 5-year CD rate, and the Raise Your Rate feature gives you two options during the 4-year term to increase the rate to the new 4-year CD rate. I have more details about this CD in my Ally Raise Your Rate CD Review.

Local CD Rates

In today's environment, it's not easy to find CDs with rates 3.00% or higher. That's even the case for terms over 5 years. I have found a few local deals. A new one this week is a 6-year CD with a 3.10% APY in New Jersey. I reviewed this CD and a few others yesterday in my local CD rate survey.

Reward Checking Accounts

The only other option for a 3% bank account is a high-yield reward checking account. There are still many local deals where you can get at least 3% APY on balances up to $25K, and there are a few in which you can even get 4.00%. However, the best nationwide deal has a top rate of only 2.51% APY.

Be careful if you see 4.00% or higher. That rate may be limited to balances of $10K or smaller. I came across one this week in which the 4.00% APY was limited to only $5,000. This reward checking account at Crescent Credit Union in MA was unusual in that it had three rate tiers: 4% APY up to $5K, 2% APY for portion of balance from $5K to $25K, and 0.15% APY for the portion of the balance over $25K.

Another potential gotcha at Crescent Credit Union is the monthly fee. If you don't meet the monthly reward checking requirements (i.e. debit card usage, e-statements, etc.), you are charged a $5 monthly fee. That's not typical for reward checking. Most are free checking accounts even if you don't meet the monthly requirements.

If you're new to reward checking, my recent post, 10 Common Traits of High-Yield Reward Checking, should come in handy.

Recap for the Week - Links to This Week's Posts

Banking News/Resources Savings/Checking Accounts - Nationwide CD Deals - National Checking/Savings/CC Bonuses Reward Checking Accounts CD and Money Market Deals - Local Posts from Previous Weeks

The rates listed below are based on Annual Percentage Yield (APY). No minimum balances are required unless noted. MMA next to the rates indicate a money market account. Most MMAs have check writing and ATM cards. Online savings accounts usually lack both of these. Previous weekly summaries are available at this page. Quick Links: Refer to the following links for the savings accounts and CDs that interest you: Liquid Account Rates: Savings Accounts, Reward Checking, Bank alternatives CD Rates: 3 Mo CDs, 6 Mo CDs, 9 Mo CDs, 12 Mo CDs, 18 Mo CDs, 24 Mo CDs, 36 Mo CDs, 48 Mo CDs, 60 Mo CDs, 84 Mo CDs.

Rates as of July 9, 2011

Checking/Savings/Money Market Accounts:

  • Noteworthy Accounts Available Nationwide:

3-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

6-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

9-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

12-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

18-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

24-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:

36-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:

48-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:

60-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:

84-Month Certificate of Deposit:

Various Deposit Account Deals

Bank Account Alternatives

Historical Rates from the Federal Reserve (Federal funds, Treasury bills, CD's)

Post a CommentComments
In order of date posted. - Sort by votes
Bozo

Bozo - #1, Saturday, July 9, 2011 - 9:22 PM

With respect to the category of "bank account alternatives", little attention (perhaps deservedly) is paid herein to bond funds. I have held out scant hope for bond funds since last February, and have actually bet against (gone short) the long (20 year Treasuries) since that time. Oh my, am I glad my wife did the opposite, plunking 40% of her 401K in Vanguard's bond fund (VBTSX). It is currently yielding a solid 3.2% dividend, paid monthly like clockwork. In addition, my Mom's Federated Fund for US Government Securities (FUSGX)(another bond fund) appears to be throwing off something north of 3.5%, paid monthly. Ahem, as we all know, when rates go up, the principal value of these funds will go down, perhaps dramatically. Since I was wrong about rates going up last February, I am realistic enough to assume that I might continue to be on the wrong side of the bet against Treasuries and bond funds. Stated another way, if you think this horrid economy will require putrid interest rates for the foreseeable future, it might be wise to hedge your bonds/cash allocation a bit more in favor of bond funds.

While I still prefer laddered CDs to bond funds in this rate environment, you can't argue with the math. If rates stay low and principal reductions don't eat up your yield, bond funds might be worth a second look.

Just a thought.

Bozo


7
51hh

51hh - #2, Saturday, July 9, 2011 - 9:44 PM

Bond funds, IMHO, is a totally different animal from bank accounts; their returns are unpredictable and one may lost principal.

That said, many people (like Bozo) can certainly invest in them and make handsome profits.

I, for one, have never learned how to spell "BOND.":D 


5
Bozo

Bozo - #3, Saturday, July 9, 2011 - 10:22 PM

I totally agree with you 51hh. Actually, it's my wife and my Mom who are in the bond funds. I'm the contrarian in the family. I did put my comment so as to be lodged in "bank account alternatives", since bond funds are different animals, so to speak, as you say. I raise the issue as an "alternative" since so many folks are (rightfully) distressed about sub-3% rates in even long-term CDs these days. It was merely food for thought. That having been said, I have not (personally) changed my view that bond funds are overdue for a major correction, and I still have on my short against long Treasuries (20 years). If the bond vigilantes finally wake up, then I will win, both through my short and also when I roll-over my laddered CDs into dramatically higher-paying CDs.

Bozo

 


5
lou

lou - #4, Sunday, July 10, 2011 - 12:35 AM

The Vanguard bond fund (VBTSX) has an effective duration of slightly more than 5. This means for every 1% (100 basis points) increase in rates, this fund will lose 5% of its value. Obviously, this is not written in stone, but is a good guidepost to see what the worst case scenario would be in a rising interest rate environment.


6
normanok

normanok - #6, Sunday, July 10, 2011 - 12:37 PM

hay boozzeo hows mom today ??


1
Anonymous

Anonymous - #7, Monday, July 11, 2011 - 4:50 PM

I don't believe in trading bond funds.  I only have individual Savings and municipal bonds.  I don't want to have to deal with a fluctuating net asset value (a pain when filing income tax returns) and I want all of my principal and interest at a fixed amount.  Of course, I can get a handsome profits during periods of decreasing interest rates, but I would go with other types of investments if that was my goal.


1
Anonymous

Anonymous - #8, Monday, July 11, 2011 - 4:53 PM

For the alternative bank account options, the rates for the Ford and GE funds are virtually the same as with bank products and you are placing your money into a single corporation unsecured debt obligations.  Not worth the risk, IMHO.


1
Bozo

Bozo - #9, Monday, July 11, 2011 - 7:27 PM

With regard to Lou's comment, I have but one thought: "exactly". A sharp rise in rates can literally wipe out a year's worth of dividends. Which is why I tempered my initial comment with the word "dramatically". That having been said, I have been waiting patiently for the past six months for the interest rate rise so trumpeted by bond vigilante afficionados, to no avail. Rather than going up, rates have gone down, and bond fund par values (which move inversely to rates) have gone up. My wife and my Mom have meanwhile continued to collect their bond coupons (aka dividends) and see their fund par value increase, while I sit here with egg on my face, having been short long Treasuries and out of bond funds for the most part over the last six months. In the long-term I may be proven right. But, wasn't it John M. Keynes who said that, notwithstanding, in the long-term we're dead?

Ahem, today was another "good" day for bond funds, I might note. It is apparent investors doubt the United States will default on its debt. Despite all the political hoopla, I strongly suspect (whatever happens to the debt-ceiling kabuki dance), the interest on the public debt will be paid out of "dollar one" tax receipts. In addition, no matter how dysfunctional the United States appears to be, it is the "least dysfunctional" of the alternatives, at least according to fixed-income types.

For those having a few bucks in the "market", I hope you were hedged today. I suspect we'll see more volatility throughout this season of silliness.

Keep your powder dry and your retirement money diversified. I prefer "age in bonds/cash", but whatever works for you and doesn't keep you up at night. As my wife will attest, nothing keeps me awake after the 9 PM news.

Bozo


1
lou

lou - #10, Monday, July 11, 2011 - 10:24 PM

Bozo, I understand your point; it is extremely difficult to forecast interest rates because of competing forces in the economy. On the one hand, you have a slow growing economy, high unemployment, deflationary worries, and treasuries for some strange reason are the currency everybody flees to when there is turmoil in the world, such as the soveriegn debt problems of Greece, Italy, etc. However, considering our enormous deficits and extremely accomodative monetary policy, you cannot discount the onset of inflation and higher rates in the near future. Where that leaves us  - who knows. I don't have any CDs coming due for a few months, and, to be honest, I have no idea what I am going to do with the money at this point.


1

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