Fed Meeting: 3rd Straight Rate Cut - Review of Impact to Savers

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The Fed decided to lower rates for the third time. The target range of the federal funds rate was reduced 25 bps to 1.50% to 1.75%. We are now down 75 bps from the recent peak of the target range for the federal funds rate.

The following is an excerpt of today’s FOMC statement with the all important rate cut description:

In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.

The big change in today’s FOMC statement as compared to the September statement was the suggestion that the Fed has moved back to a pause mode. Here’s what changed in the statement:

From the September FOMC statement:

As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

From today’s FOMC statement:

The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

The phrase “will act as appropriate to sustain the expansion” was added at the June meeting. We saw the first rate cut at the next meeting in July. Now that this phrase has been removed, the Fed will probably not be so open to a rate cut in December.

Like the September meeting, two committee members (Esther L. George and Eric S. Rosengren) voted against the policy action because they wanted to hold rates steady. Unlike the last meeting, James Bullard did not vote against the policy action. In September, James Bullard voted against the policy action because he wanted a larger rate cut of 50 bps.

Press Conference

One important thing came from Fed Chair Jerome Powell’s press conference today. When asked by a reporter about what it would take for the Fed to consider hiking rates next year, the Fed Chair focused on inflation. The following was a critical excerpt of the Fed Chair’s response:

I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns.

This appeared to give comfort to the markets. Soon after this reply, the S&P index had a large rise that pushed the index 12 points above yesterday’s close.

I had thought that the markets would tank on the Fed’s pause signals. That didn’t happen. Instead, this inflation news that suggests a very long pause period boosted the stock market.

For savers, this suggests that it may be a long time before the next Fed rate hike and higher deposit rates.

Future FOMC Meetings

The next three FOMC meetings are scheduled for December 10-11, January 28-29, and March 17-18. The December and March meetings will include the summary of economic projections. All meetings now include a press conference by the Fed Chair.

What Savers Should Expect in 2019 and 2020

Based on Fed Chair Jerome Powell’s comment about inflation, we may be starting a long period in which the Fed holds rates steady. The odds of further cuts in 2020 appear much higher than rate hikes based on the Fed Chair’s comments. Based on the recent history of inflation, it’s doubtful things will change anytime soon to meet the Fed Chair’s informal criteria for rate hikes.

Online Savings Account Rates

Online savings account rates have remained near the target range of the federal funds rate. As the federal funds rate has moved down, online savings account rates have generally followed with some lag. The good news for savers is that the online savings account rates have generally not fallen as much as the federal funds rate. Here are a few examples from the popular online banks. All percentages are APYs, which are accurate as of 3:00pm 10/30/2019:

  • American Express High Yield Savings: Peaked @ 2.10%, Now @ 1.90% (-20 bps)
  • Synchrony High Yield Savings: Peaked @ 2.25%, Now @ 1.90% (-35 bps)
  • Goldman Sachs Bank Online Savings: Peaked @ 2.25%, Now @ 1.90% (-35 bps)
  • Ally Online Savings: Peaked @ 2.20%, Now @ 1.80% (-40 bps)
  • PurePoint Financial Online Savings: Peaked @ 2.35%, Now @ 1.80% (-55 bps)

I think it’s likely that we’ll see more online savings account rate cuts in November and into December. The rate cuts should slow in December if the Fed does hold rates steady in December. With the target federal funds rate range now at 1.50% to 1.75%, I’m afraid we should expect most online savings account rates to move near this range over the next few months.

CD Rates

As we have seen in 2019, CD rates can fall even when the Fed is holding rates steady. One thing that tends to lead CD rate changes is changes in Treasury yields, and Treasury yields have been on the decline since November 2018. I’ve listed the yields of the 10-year and 5-year Treasury notes that occurred after the last nine Fed meetings. Most of the declines occurred before the Fed decided to start cutting the federal funds rate.

  • Nov 8, 2018: 10yr @ 3.24%, 5yr @ 3.09%
  • Dec 19, 2018: 10yr @ 2.77%, 5yr @ 2.62%
  • Jan 30, 2019: 10yr @ 2.70%, 5yr @ 2.49%
  • Mar 20, 2019: 10yr @ 2.54%, 5yr @ 2.34%
  • May 1, 2019: 10yr @ 2.52%, 5yr @ 2.31%
  • Jun 19, 2019: 10yr @ 2.03%, 5yr @1.77%
  • Jul 31, 2019: 10yr @ 2.02%, 5yr @ 1.84%
  • Sep 18, 2019: 10yr @ 1.80%, 5yr @ 1.68%
  • Oct 30, 2019: 10yr @ 1.78%, 5yr @ 1.61%

Brokered CD rates are the first deposit products that respond to Treasury yield changes. Like the Treasury yields, brokered CD rates have plummeted since November. The top 5-year brokered CD rate was 3.60% last November. As of last week, it’s down to 1.90%. That’s a fall of 170 bps. On the positive side, this is up from the last meeting when the top 5-year brokered CD rate was 1.70%.

Direct CD rates from online banks and credit unions haven’t fallen as much as Treasury yields and brokered CD rates, but we have started to see an increasing number of rate cuts, and the size of the rate cuts have been growing. Here are a few examples of how 5-year CD rates have fallen at five popular online banks:

  • American Express 5yr CD: Peaked @ 3.10%, Now @ 2.15% (-95 bps)
  • Synchrony 5yr CD: Peaked @ 3.10%, Now @ 2.30% (-80 bps)
  • Goldman Sachs Bank 5yr CD: Peaked @ 3.10%, Now @ 2.25% (-85 bps)
  • Ally Bank 5yr CD: Peaked @ 3.10%, Now @ 2.25% (-85 bps)
  • PurePoint Financial 5yr CD: Peaked @ 3.10%, Now @ 2.25% (-85 bps)

Based on the yields of Treasury notes and brokered CDs, I think direct CD rates may still fall some more even if the Fed does enter into a pause period.

Deposit Account Strategies

Without the possibility of Fed rate hikes anytime soon, deposit rates will likely be pretty stable in 2020, and it may take multiple years before we see substantially higher rates on savings accounts and CDs. This appears to be the best case scenario for savers. The other possibility is that the economic slowdown deepens. Even if there’s no recession, a slowdown may cause the Fed to cut rates a few more times. Even if it’s not severe enough to cause more Fed rate cuts, it would probably keep inflation muted, and that would cause the Fed to hold rates steady for a long period of time. I don’t see any likely scenario in which we return to higher rates in the next year or two.

In this type of rate environment, it seems doubtful that we’ll see any widespread CD rate increases in the next one or two years. Thus, mid-term and long-term CDs make sense now. If you’re optimistic about the economy, choose mid-term CDs. If you’re pessimistic, choose long-term CDs. If you had suspended your CD ladders by not re-investing maturing CDs into new long-term CDs, it’s time to continue with your CD ladders by investing those funds back in long-term CDs.

CDs with 3% yields still exist, but they have become harder to find. In fact, it’s very difficult to find any at banks. There are still a few credit unions that are offering them (like Navy Federal Credit Union). These have been lasting longer than I had anticipated, which is good news. However, I wouldn’t count on them lasting too much longer.

Mid-Term and Long-Term CDs with Small Early Withdrawal Penalties

If you are worried about locking money into CDs, look for CDs with early withdrawal penalties (EWP) of no more than six months of interest. The best deals are currently from credit unions that are still offering 3% CDs with EWPs of only six months of interest. These include PSECU, Justice FCU and Western Vista FCU. All three of these credit unions make it possible for people in any state to join via an association membership.

To see how the EWP affects the yield when you close a CD early, please refer to our CD Early Withdrawal Penalty Calculator.

Add-On CDs

If you have CDs that won’t be maturing until later this year or next year, consider add-on CDs with long terms. Open the add-on CD now and you will lock in today’s CD rate until the CD matures. If rates fall by the time your current CDs mature, you can fall back on that add-on CD by making additional deposits into the add-on CD. Those additional funds will then begin earning that same CD rate that was set when the add-on CD was opened.

Add-on CDs haven’t always worked as advertised. There have been a few credit unions that didn’t fully honor the add-on feature of their add-on CDs. GTE Financial almost did this earlier this month, and there remains the possibility it could still do this sometime in the future. If interest rates fall more than expected and the institution didn’t specify a maximum balance level, the risk increases that the institution may renege on its add-on deposit promise.

One add-on deposit 5-year CD that’s nationally available is the 5-year Growth Certificates at Mountain America Credit Union (MACU). Unfortunately, the rate fell in August from 2.70% APY to 2.50% APY. In late 2018, this rate had been as high as 3.51% APY. There’s only a $5 minimum initial deposit. The main downside to this add-on CD is a maximum balance of $100k (in any one or combination of Growth Certificate accounts). MACU allows members to add money to their Growth Certificates at anytime. The account also requires an automated monthly deposit of at least $10. The $100k maximum is a downside, but I think it increases the odds that you’ll be able to add deposits all the way to maturity.

A couple of online banks have add-on CDs, but they’re shorter-term CDs.

The new internet bank, Rising Bank, offers two add-on CDs. These are called Rising CDs, and they have terms of 18 months and 3 years. For add-on CDs, the longer term ones are best for hedging bets on interest rates. The 3-year Rising CD has a 2.30% APY as of 10/30/19 (Rate had been 3% in March). Unfortunately, it has a high minimum deposit requirement of $25k. There’s a maximum balance of $500k, which is an important limitation to note. Another important limitation is that you are allowed to make no more than two additional deposits during the term of the 3-year Rising CD, and each deposit must be a minimum of $5k.

The 3-year Rising CD also provides two options to increase the rate if the 3-year Rising CD rate should happen to rise. I don’t consider that an important feature, especially in our current environment. It’s not clear in the CD disclosure, but I’ve been told by a Rising Bank official that this rising rate feature is completely independent from the add-on feature. In other words, you can exercise the add-on option without the interest-rate option. So if the CD rate falls, you don’t have to worry about your CD rate falling when you make the add-on deposit.

The online bank Bank5 Connect has been offering a 2-year add-on CD since 2013. The Bank calls it the 24-month Investment CD, and it has a 2.10% APY as of 10/30/2019 (Rate had been 60 bps higher in July.) According to the Bank5 Connect’s account disclosure for the Investment CD, “You may make an unlimited number of deposits into your account.” Minimum deposit is only $500.

No-Penalty CDs

With rates likely to fall, the no-penalty CD is a good way to avoid short-term rate reductions while maintaining liquidity. Unlike a regular CD, there’s no early withdrawal penalty. So there’s no lock on your money except for the first six days from account funding.

In the last year, no-penalty CDs have been introduced at a few online banks and credit unions. Below is a list of noteworthy no-penalty CDs with their APYs as of 10/29/19. Note, it’s very likely that these rates will be falling in the next week.

  • 2.05% APY 11-month No-Penalty CD ($1k min) - CIT Bank
  • 2.00% APY 7-month No-Penalty CD ($500 min) - Goldman Sachs Bank USA
  • 2.00% APY 11-month No Penalty CD ($25k min) - Ally Bank
  • 1.90% APY 13-month No-Penalty CD ($10k min) - PurePoint Financial
  • 1.90% APY 11-month No-Penalty CD ($500 min) - Goldman Sachs Bank USA
  • 1.85% APY 13-month No-Penalty CD ($500 min) - Goldman Sachs Bank USA
  • 1.80% APY 6-month No-Penalty CD ($500 min) - Investors eAccess

Remember when comparing these types of no-penalty CDs, longer terms are an advantage. The only reason to go for a shorter term is if the rate is higher.

Uncertainty of Future Rates

I don’t see much chance that rates will rise in the next year. Any rate changes will probably be falling rates. In this kind of environment, CDs can help you earn more interest than savings accounts. Look at the CDs mentioned above if you are concerned about locking up your money. Also, a CD ladder of long-term CDs is always a useful strategy for your safe money.

It’s important to remember that no one, including me, can predict future interest rates. Last year was a reminder of this when it appeared we might be seeing 4% savings account rates in 2019.


Comments
alan1
alan1   |     |   Comment #1
PSECU has several nationally available add-on CDs with yields of 3% or higher:
2 year: 3.00%
3 year: 3.25%
5 year: 3:00%

These certificates have add-on features. Minimum amount is $500.
https://www.psecu.com/banking/certificates
Brad
Brad   |     |   Comment #2
The add on ability is limited and can not be increase during life of CD...the add in function is not great... better deals will pop up.
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kcfield
kcfield   |     |   Comment #6
Ken: Thank you for a helpful and comprehensive summary. The Fed's language does sound like future rate decisions will focus more on economic reports and less on strategy.
Frugal saver
Frugal saver   |     |   Comment #8
Thanks, Ken ! Your insights are very helpful and always much appreciated.
Get Used to Low Rates
Get Used to Low Rates   |     |   Comment #9
Outlook is now terrible for people reliant on savings (but great for Presidents who own real estate). The outlook for savers is going to be bad for quite a while. The only chance of getting 3% will most likely only be from FIs that are underfunded (as NavyFed is now) and will disappear quickly (NavyFed being the rare exception -- though don't expect that to last much longer now either). If a good deal appears, they'll be fewer and far between now -- and if one DOES pop up, savers will have to most likely weigh taking an EWP to hop on board with the new deal, whereas in the past it might have been worth it to wait until full maturity. It's also going to make it harder for places like GTE not to try to change the terms again, as more savers move their maturning funds into the few Add-Ons that had been available. According to the WSJ, larger banks have now begun charging their wealthier customers just to HOLD their cash for them.

Even harder to deal with, will be IRAs, because of the paperwork and restrictions involved relative to normal CDs (harder, and much more time-consuming to move funds with a direct xfer, and you're only allowed one indirect xfer every 12 months). So in reality, unless you already have an IRA at an FI that might briefly run a short-term deal, forget it if you're talking IRA funds (esp if you're already deposited your max for the year, and would have to do a transfer).

The bad situation savers will be facing now will make this website even more important, though it always has been. Thanks, Ken. Everything from Sharonview to PSECU, most people would never have found out about, if not for this site.
deplorable 1
deplorable 1   |     |   Comment #11
It's also pretty good for us REIT investors as I have mentioned before. When rates are this low you have to make up for lost yield somewhere else. The Obama years taught me that lesson.
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bbb
bbb   |     |   Comment #15
By Obama years, you are in fact referring to the recession. You tend to neglect that pretty often. Rates fell off a cliff in response to a recession. Now the potus wants zero or negative rates for no particular reason at all.
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Bat Masterson
Bat Masterson   |     |   Comment #23
Agreed, but only up to a point. I have never held his first four years against President Obama. That mess, as you correctly point out, was solely on Bush. This is a fact nobody has the right to ignore, nor should they.

But four years is a long time to get things back on track. I blame the the debacle of Obama's second term completely on Obama. He had other priorities. Trump changed those priorities and America has been wildly successful, even great again, as an outcome.
deplorable 1
deplorable 1   |     |   Comment #28
I am so tired of people just blaming Bush for the housing crisis. It was much more involved than that. He was in the white house yes but he also warned the Senate banking committee(Controlled by Democrats at the time) several times about risky loans and they ignored him and called him a racist. Banks were pressured to hand out loans to minorities and the poor under threats of discrimination lawsuits. They were also guaranteed to be made whole by the U.S, government if any of those loans went into default. The banks figured they had nothing to lose so this ushered in the 0 down no doc loans. Then the banks sold the loans as safe to investors and we had the financial crisis. The whole idea of "everybody deserves a house" came from Clinton actually. To sit there and just blame Bush is like blaming Trump for the 20 trillion in debt Obama handed him.
I blame Obama's first and second terms on Obama. He was focused on healthcare and regulation instead of jobs which was why the economy was so awful. Trump is focused on Jobs, tax cuts, deregulation and the economy shows it.
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Obama admirer forever
Obama admirer forever   |     |   Comment #79
During President Barack Obama’s first term, the country added 231,000 jobs. But Obama took office at the tail end of the deepest recession in half a century. During Obama’s second term, the economy added more than 10 million jobs. In every month, more jobs were added, a trend that Trump continued. If the economy continued to add jobs at the pace it did during Obama’s second term, we would expect about 1.3 million more people to be employed now than are.

Survey: Historians rank Obama 12th best president
Less than a month after exiting the White House, Obama received high marks from presidential historians for his pursuit of "equal justice for all" and for his commanding "moral authority," ranking third and seventh among all former presidents in each respective category. The 44th president also cracked a top 10 ranking for his "economic management" and public persuasion
deplorable 1
deplorable 1   |     |   Comment #98
@#79: Some facts that Obama fans completely ignore:
1. It is much easier to lower a 10% unemployment rate then it is to lower a 5% unemployment rate.
2. It is much easier to go from a Dow 7,000 to 18,000 then it is to go from a Dow 18,000 to 27,000.
Not to mention Trump hasn't even been in office for 3 full years yet and you are judging him on all 8 years of Obama. Also Obama wasn't being investigated non stop 24/7 during his presidency.
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Obama admirer forever
Obama admirer forever   |     |   Comment #100
Results of a review of surveys of about 50 leading economists — liberals and conservatives — run by the University of Chicago. What is startling is that the economists are nearly unanimous in concluding that Mr. Trump’s policies are destructive. That is why many economists are uneasy about his presidency, even though the economy earns solid grades.
Fiscal Policy: D-

The logic of fiscal policy is straightforward: In good times, the government should spend less, so that in bad times it can afford to spend more and tax less, helping to support an ailing economy. When private-sector demand falls, government picks up the slack.

On this score, Mr. Trump’s fiscal policy is a colossal failure. His signature achievement is a $1.5 trillion tax cut that provided stimulus when, arguably, it was least needed. As a result, the budget deficit is atypically high for a healthy economy, and rising government debt will make it hard for fiscal policy to provide a boost when the next downturn hits.
deplorable 1
deplorable 1   |     |   Comment #103
Which economists are conservative? All these guys come from liberal academia and thus have a extreme bias to say the least. How anyone could argue that Trump's economic policies are not working is beyond me.
1. Unemployment at 50 year lows!(that one stat alone nullifies your argument)
2. Wage increases at 3%(better paying jobs)
3. Stock market keeps making all time highs(got a 401k, 403b, IRA, Roth? then you benefit)
4. Tax cuts(more money in your pocket no matter what bracket you fall into)
5. Higher interest rates(although not back to normal at least they got off the 0% floor).
6. While other economies around the world are tanking with negative interest rates our economy is doing well and it is very healthy.

Remember these are the same economists who predicted a stock and economic crash if Trump won the election and were mostly biased for Hillary. That pretty much tells you how biased they are. They have also been predicting a recession for over 3 years now which shows you how good they are at predicting anything.
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deplorable 1
deplorable 1   |     |   Comment #107
It does sound counter intuitive I agree but never the less most economists are not conservative. I used to think economists were just fact based and numbers oriented or leaning conservative if anything. This being the case I could never figure out why they would always support Liberal ideas. They claim to be either non-partisan or "centrist" very few actually will admit to being conservative but many identify as liberal. As evidence of this look at the economist consensus since Trump has been in office. All the economic news is good yet they will argue against all Trump's policies. When Obama was in office and nobody was feeling the recovery the consensus among most economists was that Obama's policies were the correct path. Their liberal bias is well hidden even when searching for evidence of this.
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Fred
Fred   |     |   Comment #47
The latest news from China indicates that it will “aim” to buy $20 billion in U.S. farm goods in the first year of an initial deal. It also says that such purchases “could” eventually rise as high as $40-50 billion. China has an offer to buy $20 billion in ag goods in return for Trump killing his planned October tariff increase, from 25% to 30%, on $250 billion in imports, as well as abandoning new 15% tariffs on a further $112 billion in imports scheduled for December. How much would U.S. farmers have exported to China in 2020 had Trump never started his trade war. China’s 2020 purchases would have exceeded $27 billion. China would have bought over $7 billion more than what it is now offering. China’s tease that a complete end to the trade war could push its U.S. ag purchases up to $40-50 billion, this is wholly implausible. Chinese ag imports before the trade war had barely been on pace to reach $30 billion by 2022 if Trump accepts what he is calling a “massive” deal with China, he will actually be leaving American farmers at least $7 billion worse off than they would have been without his policies.
https://www.cfr.org/blog/chinas-massive-trade-offer-leaves-us-farmers-7-billion-worse
The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher
Fred
Fred   |     |   Comment #48
To simplify the above comment
China’s “Massive” Trade Offer Leaves U.S. Farmers $7 Billion Worse Off
Right...
Right...   |     |   Comment #101
That's what it is when you depend upon one country to purchase the bulk of your production. Farmers above anybody should know better than to "put their eggs all in one basket".

No different than investing money, to be safe, diversify.
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Predatory Depositor
Predatory Depositor   |     |   Comment #17
If you don't have a diversified portfolio, your lack of investment returns is no one's fault but your own. Stocks, for example, are at an all-time high. Even a basic diversified portfolio should have a stock component. The whole point of diversification is to provide offsetting returns under varying economic conditions so that you are never stuck with subpar returns in a single investment such as bank accounts. If you don't have diversification, it's not the president's fault.
Sad
Sad   |     |   Comment #22
Diversity, is, of course good (and not just in money). I have stocks and savings. But the problem is that things are really bad right now for savers -- and it's only going to get worse. The stock market's all-time high, being on the edge of a bubble waiting for a correction, is the worst place to put new money you might have. And with rates in the toilet, there are no good options. Money around the world is constantly looking for a place to be parked with good returns, and there are no places now -- with large institutions now CHARGING their wealthier clinets to have their money there.
Nothing
Nothing   |     |   Comment #27
Sad...thus with lower and lower CD rates where is a good place to park $ with similar risk level? No different than before with the most recent being the Big R timeframe. But now the future is clear...the stock market will tank coupled with massive withdrawal of overnight funding availability (see what the fed has been doing there!) ...and thus current rates do not justify anything meaningful for new CDs except bank of mattress...need higher returns? Go back to work! No different than past!
Predatory Depositor
Predatory Depositor   |     |   Comment #31
It's simply not true that things are bad right now for savers. In fact median household net worth is at an all-time record high.

You can't put all your eggs in one basket and then conclude that things are bad for egg collectors because that basket had a hole in the bottom of it.

If you save and invest your money wisely you are more prosperous now than at any time in the country's history (or human history for that matter).
Y??
Y??   |     |   Comment #26
Diversity is great. Everyone here with any basic financial knowledge knows they should have a diversified portfolio. Most people come here to keep up with the latest on savings and CD interest rates and FI to put their money into while still being fully insured.
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Milty
Milty   |     |   Comment #40
I used to have health insurance with no premiums, then in the late 80s things changed. Premium, deductibles, and copayment increases have been around for a long time, neither party escapes blame for our health care issues.
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deplorable 1
deplorable 1   |     |   Comment #59
So did I Milty my company used to pay for it 100%. I didn't even have any deductibles or co pays. Then costs started slowly increasing over time. They didn't get really bad until Obamacare! After that the costs suddenly skyrocketed out of control. The very thing it was supposed to fix! All so he could say most people were "insured". The problem was that there is a big difference between daily usable insurance and high deductible catastrophic coverage(which is all Obamacare really is).
bbb
bbb   |     |   Comment #61
I felt the impact with Obamacare too. Too bad Trump had no plan at all to fix it. Even though he said he would "on day one" and it would be "soooooo easy." Sad.
Predatory Depositor
Predatory Depositor   |     |   Comment #65
You seem to forget that President Trump put in a Herculean effort to try to end the scourge of Obamacare. But he could not do it without Congress. And John McCain foiled President Trump's amazing effort by voting against the repeal of Obamacare. If not for McCain Obamacare would be gone.

https://www.nbcnews.com/health/obamacare/mccain-hated-obamacare-he-also-saved-it-n904106
bbb
bbb   |     |   Comment #66
Oh yes, the "let's figure it out later" plan that failed three times? I guess it wasn't really a plan at all. Another failed campaign promise. Like how Mexico was going to pay for that wall. But then he didn't even try to make Mexico pay for it. But he shut down the government and side stepped the constitution to force Americans to pay for it. Great plan.
Milty
Milty   |     |   Comment #68
As far as I could tell, getting my insurance through an employer, ACA did not impact us. Rates went up about the same before and after. I think the ACA helped some, hurt others . . . don't know the real stats. But my experience, cost of health care and insurance was already getting worse before ACA.
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buckeye61
buckeye61   |     |   Comment #16
Hard to judge how the political situation will ultimately effect interest rates, but these huge budget deficits are adding to the already enormous national debt and will be a serious headwind for savings rates. we have a President that is adored by 35% of the population and loathed by the other 65%.....but could very well win reelection. Low interest rates benefits some sectors of the economy, and certainly benefits debtors like Trump, but it also creates bubbles in the economy and discourages savings. In my mind, rates were still low before the this current rate cutting cycle, but the global economy has made things difficult from a competitive vantage point. I guess Obama was right about low interest rates being the "New normal".
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Bat Masterson
Bat Masterson   |     |   Comment #24
Prescience regarding where America is heading economically can be garnered through study of Argentina.
deplorable 1
deplorable 1   |     |   Comment #30
I don't know where those poll numbers are coming from but they are way off. The last poll I saw showed Trump at 52% approval. Those must have been the same polls that showed Hillary winning the last election. I have never once been polled so I question who these guys are polling. Low interest rates are the new normal due to the debt. Now if somebody handed you 20 trillion in debt how would you pay it off when most of the country is looking for government handouts? Where would you cut spending? Maybe Trump's way is to grow our way out with better trade deals and higher GDP. It's not his fault the rest of the world is tanking economically and taking us along for the ride. You think it's bad now If Hillary was president we would be in a deep recession with negative rates because that is where we were headed.
Anon
Anon   |     |   Comment #32
The national poll showing Hillary winning the popular vote was right on target. She lost the electoral college by less than 100,000 votes in 3 state's.
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Right...
Right...   |     |   Comment #64
But Hillary still LOST. Get over it!
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Big Jim
Big Jim   |     |   Comment #33
Its a great time to have social security kick in. I'm very thankful for an extra $1600 per month.
I worked. I paid in. Now I'm getting paid back. Maybe I'll live another 30 years. Or maybe not. Who cares! I'll spend and enjoy the money as long as I can. Pass me the Jim Beam. :-)
deplorable 1
deplorable 1   |     |   Comment #35
Yes thank the government for trickling your money back to you that they stole out of each and every paycheck back when you were young enough to enjoy it. Maybe if you are really lucky you just might get it all back if you live to be 150 years old. Even then it would still have been a bad deal.
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Milty
Milty   |     |   Comment #42
I paid more in federal income tax than fica, and haven't gotten a penny back from that yet. Least with SS/Medicare you may get something back, and unlike some here, some actually depend on it.
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deplorable 1
deplorable 1   |     |   Comment #81
You are not supposed to get your taxes back Milty. Those are used to fund and run the government. I for one have no problem funding a border wall or the military with my tax dollars. I certainly don't want to be paying illegals medical and Social Security though.
kankles
kankles   |     |   Comment #82
81 where have you been? Of course were going to pay illegals because they pay taxes like anybody else and there medical will be paid by the rich. The border wall funding is a joke and trump should be put in jail for improper funding.
Milty
Milty   |     |   Comment #85
D1: I understand--there are some taxes you like and some you don't. I think we are both in agreement on that, we just disagree on which taxes and what they're used for.
deplorable 1
deplorable 1   |     |   Comment #90
Yep that's pretty much the case Milty. It looks like some folks with pensions got to opt out of SS but not everyone gets that choice. I have a problem with mandatory taxes because the government doesn't think I can manage my own money properly without their help. I understand that many folks can't I only wanted the option to opt out. With what's happening to pensions though It may end up working out better than I thought.
Milty
Milty   |     |   Comment #96
D1: As you said, you don't like mandatory taxes, but of course federal income tax is pretty mandatory, at least for most of us. Very few today can actually opt out of the SS tax, but whether most would be better off opting out, I would argue they would not since most lack the money management skills and foresight to do better. You are the exception to the rule. BTW, I have a pension that I did not contribute to and with a company unlikely to default, and am glad to have it. Today very few earn pensions, mostly public workers, and rather than race to the bottom to eliminate pensions, I suggest a rebirth of pensions as the 3rd leg to retirement (SS, 401k, Pension). Having a pension allowed me the peace of mind to gamble in the stock market, which fortunately paid off.
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Thankful
Thankful   |     |   Comment #46
Milty is correct. The FICA that came out of my checks was actually pretty small. I'm getting way more back each month than came out of my checks.

But the SS money we get today is paid by today's working people. The money I paid in, when working in the 70s 80s and 90s went to the retirees of those generations. Thats how I understand it.

I'm just thankful for whatever income I have in retirement. We all know interest rates are not so hot. I gladly and thankfully accept and use my SS. Without complaining about how much came out of my checks 20 years ago. Thats silly.
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Predatory Depositor
Predatory Depositor   |     |   Comment #94
"But the SS money we get today is paid by today's working people. The money I paid in, when working in the 70s 80s and 90s went to the retirees of those generations. Thats how I understand it."

Correct. That's exactly how it works.

Another name for that system is a Ponzi scheme. If someone in the private sector sells an investment system that works the same way, they end up in prison.

No doubt any system where you put in $1 and get out $3 is going to be popular. The problem is that it's not sustainable. Especially when there is a declining birth rate like there is now.

The social security system is a generational redistribution of wealth. As long as you don't care about the liberty of subsequent generations it's fine.
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DCGuy
DCGuy   |     |   Comment #78
I hope my ~80% pension pays during the retirement years. I paid over six figures into the pension fund. No Social Security for me. Job was not covered under FICA. Along with the 401(k), HSA, and IRA money that I put aside, the total payout might come close to my current annual wage.
deplorable 1
deplorable 1   |     |   Comment #80
I thought everyone had to pay FICA? What type of job did you have where you didn't have to pay? Government?
Yeah pensions are not always safe either many pension funds go bankrupt and only end up paying out a fraction of what they were supposed to. This happened to my uncle after paying a fortune into it over 40 years. I now feel lucky I didn't have a pension. Compared to what happened to him even SS looks like a good deal.
Right...
Right...   |     |   Comment #83
Nope, not everyone. I thought you knew everything.
deplorable 1
deplorable 1   |     |   Comment #84
Nope always learning every day. It's not possible to know everything.
1 Adam 12
1 Adam 12   |     |   Comment #86
All the cops and firemen in my area don't pay into FICA. I think everyone should regardless of what type of work. Maybe then the SS system wouldn't be in so much financial trouble.

I would much rather have a pension, than not. Even if there was trouble and they cut some, Obviously you can't rely on it 100%, but everyone does. I've been lucky so far.
Nothing
Nothing   |     |   Comment #87
You don’t know what you don’t know! If you are in the negotiation/pricing business this is a very well known concept that must always be appreciated
Right...
Right...   |     |   Comment #88
Yep, if you want to keep your expenses and taxes low bartering or cash & carry works best.
Nothing
Nothing   |     |   Comment #97
Tax avoidance is different than tax evasion...think about it
Something
Something   |     |   Comment #93
I don't know.
Gone fishin'
Gone fishin'   |     |   Comment #95
I learned everything in five minutes:

Put pension on auto-deposit.
Put SS on auto-deposit.
Find a cd and term you like.
Fill out app and hit send.
Come back in 5 years after its done cookin'.
Predatory Depositor
Predatory Depositor   |     |   Comment #91
Government workers' pensions are pretty secure. Taxpayers have unlimited liability to pay for them. They can take your last penny, your house and all your assets to pay the pensions of government workers even if it puts you out in the street. Can't get much more secure than that.
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Jean
Jean   |     |   Comment #67
Thanks to this nice website and all the hard work they do, I discovered the NPCD's. I had never heard of them before. 2.60%, 2.50%, and I even grabbed one last month that pays 2% because I didn't know what to do with the cash. (Right now, 2% doesn't look half bad.)

My liquid cash savings is good until November 2020. There may be some better rates out there, but I'm good with that for a year. Thanks to Ken and staff.
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Big Jim
Big Jim   |     |   Comment #89
Discover 10 yr CD dropped to 2.30%!

I almost got one when it was 3.10%. That's a good medium range yield that I thought they would leave alone. The interest I would get from a 3.10 CD would pay all my monthly expenses very easily for 10 years.

Regrets!
Curious
Curious   |     |   Comment #106
Do you think this opportunity will return four or five years from now?
Hoody
Hoody   |     |   Comment #108
Looks like Navy Fed has now gone back to normal rates too, all the specials are gone.
Milty
Milty   |     |   Comment #109
U.S. stock market again hitting all-time highs . . . would be willing to bet the only reason for this is the Fed rate cuts, sustaining a "There Is No Alternative" effect with average investors now chasing dividend returns. Given that baby boomers have started turning 70, and have to start their MDR, it will be interesting to see what affect his has on the market. Am guessing many boomers will feel the TINA effect and that they have no choice but to stay in. Thoughts?
deplorable 1
deplorable 1   |     |   Comment #110
Really Milty? You still can't see that it's the tax cuts, deregulation and Trump's policies making the economy boom and the stock market go up after 3 years? How good does it need to get before some of you guys wake up to the fact that Trump is doing an amazing job? The world economy is tanking and we are doing great. No you can't credit Obama with Trump's economy. BTW my dividend paying REIT's are doing great. :D
CDmanFL
CDmanFL   |     |   Comment #111
Brother D1, would love to know which dividend paying REITs you’re talking about. Can you please advise? I’m a CD man through and through and wanted to stay that way for life but these paltry rates are forcing me to consider other options. I know REITs are essentially stocks so it makes me uneasy and a little scared. Would love to hear your thoughts on why to consider these and which ones you recommend. Thanks.
deplorable 1
deplorable 1   |     |   Comment #112
I wouldn't recommend individual REIT's even though I do own some. I would look at these 3 MORL, MRRL and REML. There are more but these are my favorites. I really don't like the market either but had no choice during the 0% years. So I looked for monthly income using dividends to replace interest. These guys all pay monthly and are based on 2x leverage of the dividend payouts of the underlying REIT's in the index. There are 4 large payment months and 8 small months so the monthly payouts are not equal. By law REIT's must payout 90% of their profits to shareholders to maintain their status. REIT dividends are also taxed at at lower Thanks to the Trump tax cuts and the QBI deduction. This combination to me makes them one of the best investment choices. The biggest risk is 2x leverage in a single sector. The fact that it is a index vs. a single REIT mitigates the risk somewhat.
Disclaimer: This is part of a diversified portfolio and the authors opinions are his own. I currently own MORL and MRRL and other REIT's. Past performance is no guarantee of future results.
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deplorable 1
deplorable 1   |     |   Comment #118
Looks like REIT's are down today. BTW A good buy in price is $20 for REML and $12 for MORL and MRRL. If they ever get that low again. The lower the price the higher the dividend yield so cast basis matters greatly.
Anon
Anon   |     |   Comment #113
@CDMan. MORL is an ETN, an Exchange Traded Note.
deplorable 1
deplorable 1   |     |   Comment #119
MORL is a ETN yes but what you are actually buying is 2x leveraged debt based on the dividend payouts of the underlying REIT's in the MVIS Global Mortgage REITs Index. Sounds risky and crazy but the expense ratio is only .40% which is low and For me I pay 0% tax on the yield. I would categorize this a a mutual fund of leveraged debt in a single sector.
Milty
Milty   |     |   Comment #114
D1: yes, really. Read Dalio in today's Marketwatch--investors are buying dreams rather than earnings. I believe the market's growth is mostly due to low interest rates, during Obama as well as Trump. All the GOP did was fuel the fire (and the deficit) by cutting corporate taxes, leading mostly to stock buybacks not wage or benefit increases. Also, I doubt you can quantify how deregulation has improved the economy. Are you really here to promote Trump's anti-saver record?
Just the facts
Just the facts   |     |   Comment #115
Milty, you are spot-on as usual. Thank you for spreading the FACTS and truth.
deplorable 1
deplorable 1   |     |   Comment #117
Not at all Milty but It was Trump's policies that got interest rates to rise in the first place. It will also be Trump's policies that allow rates to rise again. You guys claim to want higher interest rates yet rail on against the very policies that will eventually cause rates to rise. The media is now using trade war fears and inverted yield curve to stoke recession fears before the 2020 elections. As usual it's all smoke and mirrors. Sure low rates force people into the market to seek yield just as they did when Obama was in office. The difference now is that the market is going up for other reasons as well. Deregulation and tax cuts save companies money which can then be used for a variety of things like hiring, wage increases, dividend hikes, reinvestment in the company, stock buybacks etc. Personally I think rates were just fine where they were and no cuts were even needed. The market had these cuts baked in so It's not rising because of rate cuts since the FED just signaled a pause at the last meeting.
Fed Meeting: Another Rate Cut - Review of Impact to Savers

The Fed decided to lower rates again. As expected, the target range of the federal funds rate was reduced 25 bps to 1.75% to 2.00%. We are now down 50 bps from the recent peak of the target range for the federal funds rate. It should be remembered that we never had two rate hikes at two consecutive Fed meetings in the last rate hiking cycle. This current pace of rate cutting is twice the rate hiking pace that we experienced, and that is without any indication that the...

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Fed Cuts Rates - Predictions with Savings Account and CD Strategies

For the first time since December 2008, the Fed has cut the federal funds rate. The target range for the federal funds rate was lowered 25 basis points to 2.00%-2.25%. The following is an excerpt from today’s FOMC statement announcing the rate cut:

The justification for the cut is based on just “global developments” and “muted inflation pressures”. The justification wasn’t based on the state of the economy which is strong.

In addition to the rate cut, the Fed also decided to stop reducing its balance sheet two months earlier than...

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The Fed Opens Door to Rate Cuts - Rate Predictions & CD Strategies

The Fed decided to hold steady on rates, but it did make an important change to the FOMC statement which opens the door to future rate cuts. The Fed removed the “patient” sentence and replaced it with the sentence that states the Fed “will act as appropriate.” The following are excerpts of today’s statement and May’s statement that shows what replaced the “patient” sentence:

May 1 FOMC Statement excerpt:

June 19 FOMC Statement excerpt:

Not all FOMC voting members agreed to hold steady on rates. According to the statement:

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The Fed’s Pause Continues - Rate Predictions & CD Strategies for 2019

As expected, the Fed reaffirmed its “patience” policy by holding steady with the federal funds rate target. The post-meeting statement contained the same patience language that was in previous meeting statements:

One change from the March statement is the description of growth of economic activity. In March, the statement read, “growth of economic activity has slowed from its solid rate in the fourth quarter.” Today’s statement read, “economic activity rose at a solid rate.” This change should reduce the odds of a 2019 Fed rate cut.

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Fed's Pause Has Begun - Rate Predictions & CD Strategies for 2019

There were no surprises yesterday when the Fed made its post-meeting statement. The federal funds rate remained the same, and the same patience language was used to describe the Fed’s future plans:

One thing that did change in the statement from January was the description of the current economic condition. There were clear downgrades in its view of the economy:

In January, the Fed’s statement included these positive views:

Yesterday’s statement changed the above lines to the following:

This policy action was an unanimous decision with no policymaker dissenting.

In addition to the statement,...

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