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Fed Hikes Funds Rate Again - Savings Account/CD Rates?


As expected, the Fed raised the intended federal funds rate from 4.75% to 5.00% (CNN article). This is the highest it has been since January 31, 2001 (see rate history). The Fed indicated they may take at least a brief pause in pushing rates up further. The "extent and timing" of additional rate hikes would depend on future economic data. There's a chance the Fed may pause at their June 29th meeting.

Which no-minimum savings accounts will be reaching 5%? Unlike last year, fewer and fewer banks are keeping up with the intended federal funds rate. Only RateEdge.com has continued to keep up (see post). Unfortunately, they're a credit union with membership restrictions.

On the last Fed rate hike, UmbrellBank and VirtualBank preceded the Fed action with higher CD rates. VirtualBank continued this trend yesterday with their new CD rates which includes a 5.25% APY 6-month CD. So far, there has been no rate changes at UmbrellaBank. Their last rate change was on April 11th. So they're due for new rates.

I was hoping for a big move by EmigrantDirect like they did on the Fed meeting last September when their savings account rate went from 3.50% to 4.00% APY. Seems like it would be a good time for Emigrant to bump up their savings account rate from 4.50% to 5.00%, and maybe their My Way CDs from 5% to 5.50%. Emigrant's savings account rate has been at 4.50% since March 15th. That was also the time when they introduced certificates of deposit. The CD rates remain the same at 5% although they did reduce the minimum term from 18 months to 9 months last month.

Last year, HSBC had a consistent record of keeping up with the Fed Funds rate (see chart). But from last week's New York Times article, a HSBC official was quoted as saying that they no longer feel compelled to offer the very highest rates (see post). So it seems they're in no rush to push past 4.50%. That article also had a quote from a Citibank manager who said they intend to keep their new e-Savings account rate high "When the Fed increases rates, we will go up as well.". No change yet. This week we should see if there's any truth to that.
Anonymous   |     |   Comment #1
EverBank will get my funds for the next 3 months. (5.51% promo rate). Hopefully by August one of these guys will get their act together.
ncnblog   |     |   Comment #2
First off, I just really, really dig your site. Thanks for linking to me, and I constantly check your site for updates.

Now, just a quick "opinion" question...

At what savings rate would cd's, savings accounts, etc. be a better alternative for long-term rates than mutual funds, etc.
In other words, if I could get a savings account rate of say 8 percent, would that be a sufficient return to not "need" mutual funds...
(When I invest, I am looking for a long-term return of between 8 and 12 percent.) Do you think we will ever see rates this high on savings accounts, cd's, etc.? If so, wouldn't they begin to be decent "long-term" investment vehicles...

Man, this seems like a rambling post...hope it makes some sense...
latex_salesman   |     |   Comment #3
Dear Mr. Banking Guy,

could you provide me with the Citibank 's manager email addr. (who uttered those words) ??

I'd say for somebody like you it won't be a problem....
Anonymous   |     |   Comment #4
jford interest advantage 5.5%-5.85% apy
Anonymous   |     |   Comment #5
ford interest advantage
Anonymous   |     |   Comment #6
if 'ford' pays so much, why is this not so popular? what am i missing?
Banking Guy
Banking Guy   |     |   Comment #7
Here's an important point regarding the Ford Interest Advantage Program:

"Ford Interest Advantage is a program under which you can invest in unsecured senior debt obligations of Ford Motor Credit Company. It is not a money market mutual fund or a bank account and is not protected by the Federal Deposit Insurance Corporation or any other insurance. Since all funds are invested in the security of a single issuer (Ford Credit), investors will not have the diversification offered by money market mutual funds or the protection, including quality standards, provided by the Investment Company Act of 1940."
Banking Guy
Banking Guy   |     |   Comment #8
ncnblog, I have to admit that over the long term and based on history, stocks have outperformed bonds, Treasuries, savings accounts and CDs. There have been periods when you could have received over 10% on a CD (in the early 80's my parents got a 16% APY 10-year CD from a FDIC bank). But in the long term, their average returns have been below stocks.

So it's all a matter of long-term and short-term goals, risk tolerance and diversification.
Perturbance   |     |   Comment #9
On a similar vein as Ford, General Electric allows you to invest in their corporate notes. Theirs is called GE Interest Plus. The Prospectus says that your interest rate is guaranteed to be higher than "the most recent 7-day yield of the average U.S. money market mutual fund."

The investment is like a bank account in the fact that you can write checks against it, but you must be cognizant of the fact that the account isn't insured by the FDIC or any other entity.

The caveats are similar to what Banking Guy said about Ford- you're investing in GE's Notes rather than the money sitting in a bank account. If GE ever defaults on their obligations, you've lost your investment.
Anonymous   |     |   Comment #10
I've been in Ford Interest Account for year...Very quick EFT's and the best rates...The company just posted a 1 billion dollar profit last quarter. It pay 2.75% over $50k. These days I'm not so sure the FDIC is that safe either. :c)