Fed Meeting: Another Rate Cut - Review of Impact to Savers

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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 economy is nearing a cliff. Those who have advocated for big rate cuts should keep that in mind.

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 1-3/4 to 2 percent.

The rest of today’s FOMC statement was close to the July statement with a very similar economic overview. One significant difference was the number of voting dissenters. There were three dissenters this time rather than two in July. Like the July meeting, two committee members (Esther L. George and Eric S. Rosengren) voted against the policy action because they wanted to hold rates steady. However, there was another member (James Bullard) who voted against the policy action because he wanted a larger rate cut of 50 bps.

Summary of Economic Projections

In addition to the statement, the Fed released an updated summary of economic projections (SEP). In the first table of this summary, you can see the Fed’s economic projections for future years and how they compare to the Fed’s June projections. For GDP and the unemployment rate, there were slight upgrades. There were no changes in inflation projections. With forecasts like these, you can see why there was no large rate cut.

Fed’s Dot Plot

At the bottom of this first table, the forecast most interesting to savers is the projected federal funds rate. The median projected federal funds rate for 2019 shows no more rate cuts. That’s also the case for 2020. In 2021, the median projection is for one 25 bp rate hike. That’s also the case for 2022. By the end of 2022, the median projection for the federal funds rate is 2.4% which would require two 25 bps rate hikes from today.

It should be noted that a median projection that suggests no rate cuts for 2019 should not be taken too seriously. If you look at the projections of the participants in the bottom most chart of the SEP, you’ll see there are three groups in the committee. One group of 5 projects one 25 bp rate hike by the end of 2019. One group of 5 projects no more rate changes, and one group of 7 projects one more 25 bp rate cut. If those 7 are the voting members, there will likely be another rate cut in 2019 if economic conditions don’t change. In 2020, the rate hike group and the rate cut group grow. For future years, the rate hike group grows while the rate cut group shrinks. Out of the 17 participants, 10 of them think the federal funds rate will be higher (by 25 to 75 bps) by the end of 2021. That’s a reasonable optimistic view of future rates in two years that savers should keep in mind.

Press Conference

In the press conference, Fed Chair Jerome Powell was asked several times about the path of future rates. He downplayed the need for large rate cuts as long as the U.S. economic outlook remains favorable. Fed Chair Powell said to reporters that “if the economy does turn down, then a more extensive sequence of rate cuts could be appropriate.” According to Fed Chair Powell, today’s rate cut was intended “to provide insurance against ongoing risks.” In his opening remarks, he gave the following description of the risks:

Since the middle of last year, the global growth outlook has weakened, notably in Europe and China. Additionally, a number of geopolitical risks, including Brexit, remain unresolved. Trade policy tensions have waxed and waned, and elevated uncertainty is weighing on U.S.investment and exports.

One reporter asked about the dot plot and how that should be interpreted. Fed Chair Powell stressed that the dot plot should not be taken too seriously since future economic data may change projections considerably. In short, the odds of future rate cuts are probably higher than what they appear based on the dot plot.

Lastly, there was discussion at the press conference about the Fed’s response to elevated funding pressures in money markets this week. The markets appeared to be pleased to hear Fed Chair Powell mention that “it is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought.” Any increase in the balance sheet could put downward pressure on long-term yields just like Quantitative Easing did. However, Fed Chair Powell tried to downplay the impact of the Fed’s action in this area by saying that “while these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy.” This Barron’s article has a detailed review of this topic.

Federal Funds Rate Futures

The Fed Funds futures markets (via the CME FedWatch Tool) are now pricing in a 44.9% chance of another Fed rate cut in October. The odds of the Fed holding rates steady are 55.1%. That’s a good sign that rate cuts could be ending sooner than many expect. By the end of the year, the odds that the federal funds rate will be at least 50 bps lower (125-150 bps) are now 12.6%. That’s just a little higher than yesterday’s odds (11.4%).

Future FOMC Meetings

The next three FOMC meetings are scheduled for October 29-30, December 10-11, and January 28-29. The December meeting 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

Online Savings Account Rates

Online savings account rates have remained near the target range of the federal funds rate. The well-established internet banks like Ally and American Express have online savings account rates just below this range while the newer internet banks that are being more aggressive have rates that are at the top of this range.

With the new target range of the federal funds rate being 1.75% to 2.00%, we should expect online savings account rates to move down by about 25 bps.

The online banks didn’t wait for a Fed rate cut. When the Fed opened the door to rate cuts at its June meeting, several online banks responded with cuts on their online savings accounts. These included Ally, Synchrony, Marcus by Goldman Sachs, Barclays and Discover. Since the time from the first rate cut on July 31st, these well-established internet banks have further cut their rates by 10 to 20 bps. Most have savings account yields at or just below the previous bottom of the target range of the federal funds rate (2.00%).

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. On November 8, 2018, the 10-year and 5-year Treasury yields were 3.24% and 3.09%, respectively. After the July Fed meeting, the 10-year and 5-year Treasury yields were 2.02% and 1.84%, respectively. Now, the yields are much lower at 1.80% and 1.68%. These are up from levels early this month. On September 4th, the 10-year and 5-year yields were 1.47% and 1.32%, respectively.

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 1.70%. That’s a fall of 190 bps.

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.

We should expect CD rates to keep falling until Treasury yields stop falling and the Fed signals an end to the rate cuts.

Deposit Account Strategies

Even though we are probably not heading into a long series of rate cuts, I think it’s likely that we’ll see at least one to two more Fed rate cuts in the next year. Even if trade tensions ease and the economy strengthens, the Fed is unlikely to return quickly to rate hikes. There will first be a long pause at the Fed to ensure the economy can handle higher rates. 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 before we see more CD rate cuts. 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), but I wouldn’t be surprised if these disappear in the next month.

5-Year CDs with Small Early Withdrawal Penalties

If you are worried about locking money into long-term CDs, look for 5-year CDs with early withdrawal penalties (EWP) of no more than six months of interest. A few online banks that have competitive 5-year CDs with EWPs like this include MainStreet Bank, TAB Bank, Ally Bank, Barclays, and PurePoint Financial. Unfortunately, all of the above banks have cut their 5-year CD rates in the last two months. 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. 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 last month 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 2.35% APY as of 9/18/19 (Rate had been 30 bps higher in July). 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 2.30% APY as of 9/18/2019 (Rate had been 40 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. Ally Bank has been offering a no-penalty CD for years. Its current 11-month No Penalty CD has a 2.10% APY for a $25k minimum deposit (The rate had been 20 bps higher in July). Marcus at Goldman Sachs is one of the banks that has just recently introduced no-penalty CDs. The highest rate is currently 2.10% APY on a 7-month term. The no-penalty CDs with longer terms actually have lower rates (11-month earns 2.05% APY and the 13-month earns 2.00% APY). 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.

The above rates are accurate as of 9/18/2019.

Return to Zero Rates?

There are two possible scenarios in how rates play out in the next few years. First, Fed rate cuts will soon end. The Fed’s economic projections are still favorable with no recession in sight. Once the Fed rate cuts end, there will likely be a period in which the Fed will hold rates steady, and once economic confidence returns, the Fed could return to rate hikes. This is the scenario that many on the Fed believe in, as shown in the dot plot.

The other possibility is that we are headed into a recession. The global economic slowdown and the trade tensions eventually bring down the U.S. economy. If that happens, it’s likely the Fed will lower rates back down to near zero, and we’ll return to the rate environment that we experienced between 2009 and 2015.

I don’t see any case in which rates rise quickly past where they were in late 2018. Of course, 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
jimdog
jimdog   |     |   Comment #1
I think there is too much debt out there for rates to go much lower. Govt's will need someone to buy their trillions of newly issued debt.
DAfan
DAfan   |     |   Comment #2
Agree with jimdog. For example, Japan's rates are zero, which is why they are the largest holder of US treasuries. You really think they would buy US vs Japan if both at zero? If Japan or China start dumping US treasuries rates will skyrocket.
MAGA
MAGA   |     |   Comment #3
None of them will dump I can assure you of that. There is going to be deep structural damage for negative rates and the Fed knows this. Trump is full of it if he thinks the Fed will follow the same path as the Europeans and Japanese. Nothing wrong with another rate cut, but don't expect anything beyond that.
#4 - This comment has been removed for violating our comment policy.
anon@anonymous.com
[email protected]   |     |   Comment #6
Jimdog,
I would look at this differently. The reason rates might go lower is that there is too much debt out there. Debt is deflationary. Gov'ts need to refinance or extend maturities. The interest burden is unsustainable, and increases in rates will only add to this burden.
If Europe and Japan are negative already, and probably heading more negative, the only market large enough to support their fixed income investment needs is the US Treasury, and if our rates are higher (either positive or less negative) it still benefits them to buy and hold our paper. If the dollar remains strong as a result of our higher rates, it also adds to their returns.
China has been reducing US Treasury holdings not because of rates or trade, but because they need the actual dollars to conduct business since USD is the reserve currency. They are short dollars (need to convert from yuan) and need them to transaction business. They get USD by selling or maturing their bond holdings. Japan has recently become the largest holder of US Treasuries.
john
john   |     |   Comment #5
ken you belong on the FED,they cant shine your shoes
deplorable 1
deplorable 1   |     |   Comment #7
Outstanding review of current FED conditions and options for savers by Ken. I can't believe that they are totally ignoring the good economic conditions and rising inflation by suggesting even more "insurance" rate cuts. I have been watching the FED moves for over 30 years and have never seen anything like this. I would imagine that there will be even more dissenters if the FED cuts rates again. Then Trump seems to be in his own world regarding interest rate policy. You don't have 0% rates when the economy is strong. I think he is looking at rates from a purely "business" perspective so as to pay less interest on our debt which is raising the deficit.
Anonymoose
Anonymoose   |     |   Comment #8
I think that President Trump's desire for lower rates is the same as every other president when an election is looming. Lower rates stimulate the economy, and a stimulated economy stimulates votes for the incumbent. Lower rates reduce the chance of a recession in the short-term. That's critical to President Trump's re-election and he knows it. The last thing he needs is to have all his pro-growth policies thwarted by rising rates in the last year before his election. And with the low rate of inflation and strong economic numbers there really was no reason for the Fed to increase rates in the first place. They should have let the economy boom into the stratosphere instead. That would have gone a long way to reducing the angst over the debt.
Milty
Milty   |     |   Comment #9
I agree, D1. We have never seen anything like this with the continual interference of a president apparently desperate to make it appear the economy is booming by pointing to folks's 401k balances. You would think low unemployment and relatively low inflation would be enough. (By practicing this TINA approach to investing, it seems there will eventually be a price to pay.) Btw, my understanding is reducing the rates helps Trump.org (and others) immediately with their variable rate loans, but has little effect on the current Debt, only effecting future borrowing, which one might argue is mistake in this economy. Contrary to Moose, except for the stock prices, I don't think the economy nor the debt would look any different now if the Fed had not raised rates, and certainly no other president has interfered as much with the Fed . . . if so, site your sources.
Anonymoose
Anonymoose   |     |   Comment #22
*OBAMA'S FED CHAIR JANET YELLEN AGREES WITH TRUMP: FED SHOULD CUT RATES

Ex-Federal Reserve Chairwoman Janet Yellen told Colorado economists at a meeting Sunday evening that she agrees with President Donald Trump about cutting interest rates."

https://www.newsweek.com/obama-fed-chair-janet-yellen-agrees-trump-cut-interest-rates-1451545
bbb
bbb   |     |   Comment #33
Makes you wonder why he nominated Powell instead of Yellen then.
Anonymoose
Anonymoose   |     |   Comment #44
Powell was a wolf in sheep's clothing. President Trump came to Washington with no political experience. In fact you could argue that that was the main feature upon which he was elected in the first place. He made some bad hires and appointments before he understood that the political world is filled with Trojan horses. But now he's got 3 years of experience under his belt and he's doing a masterful job of figuring it all out.
deplorable 1
deplorable 1   |     |   Comment #53
#44: Not to mention deep state operatives trying to undermine him at every turn and some in his own party either a part of it or turning a blind eye. All the while the media giving them cover. He has done a truly amazing job while being constantly under fire. I do disagree with him on interest rate policy though.
Never Trump Socialist
Never Trump Socialist   |     |   Comment #62
I guess if you consider starting a trade war with the rest of the world to be amazing, that fits the bill.

He's single-handedly cost us savers a fortune. Probably at least 2%, maybe more. Remember your predictions last year? 4% for savings accounts. 5% CD's?

Yup, go ahead and keep voting for him. And, when the US has negative interest rates, don't blame it on anyone but yourself.
deplorable 1
deplorable 1   |     |   Comment #69
Look the trade wars will get done, we had 4-5% CD's as predicted. Obama had 0% FED rates for 8 years and if Hillary would have gotten in we would have already been in a recession with negative rates by now(it was all planned) and we would have never known about every government agency being weaponized to take down Trump. You think they didn't want Trump in there because of personality? Nope they wanted to cover up the silent takeover of the U.S. government and have the population remain completely in the dark and ignorant(many still are). Trump came in and threw a bomb in their fallout shelters and shut the door. He has survived all their attacks and come out even stronger on the other side. Yes that's pretty amazing and I don't know any other politician who could have survived all those attacks.
#70 - This comment has been removed for violating our comment policy.
James Bolton
James Bolton   |     |   Comment #61
The presidency as a reality TV show.
"Your fired!"
Some bad hires, eh?
He's forced-out around 40 people in his administration.
That's 10 per year.
Give me a break!
#72 - This comment has been removed for violating our comment policy.
Wishfulthinking
Wishfulthinking   |     |   Comment #24
What anyone "thinks" here doesn't drive FED policy making or decisions, thankfully. Individual "wants" are not considered.
#63 - This comment has been removed for violating our comment policy.
ichaelm
ichaelm   |     |   Comment #10
VIO Bank's online savings account is still paying 2.52%, despite the rate cut. (At least, as I type this, it is)
Anonymoose
Anonymoose   |     |   Comment #13
Sounds like a decent option if you don't have the Northern deal.
RL01
RL01   |     |   Comment #71
went down to 2.42% now :(
Trump is best POTUS since Reagan
Trump is best POTUS since Reagan   |     |   Comment #11
I am disappointed the Fed cut again. Now am concerned this will become habitual. Every six weeks . . . . another cut!

Even worse, one voter on the committee voted against this cut because he wanted a LARGER cut!! This is nuts!
CARPET
CARPET   |     |   Comment #12
Deplorable 1- Do you have any experience with Bankers Trust and funding CD's by credit card? Just curious if they put it through as a purchase.........and at maturity wondering if you can just use ACH to transfer it out. I would rather not open a checking or savings with them unless I have to........I know I can call them for this info but I trust you much more!! :)
deplorable 1
deplorable 1   |     |   Comment #15
@Carpet: Not yet. I was looking at them too with their 7 mo. CD and $10,000 cc funding but I don't think I can open a account out of state. I have not called them to verify this yet. It looks like it would code as a purchase but it's always best to call and ask them. They have a online application but it may be just for Iowa and Arizona residents. If you call them post back if out of state applications are accepted.
CARPET
CARPET   |     |   Comment #42
Thanks-Yes could be just IA and AZ. I will check it out pretty soon
CARPET
CARPET   |     |   Comment #43
**UPDATE** Dep1-Just checked their online application.......Yes.....You do have to be a resident of IA or AZ. Oh well.
deplorable 1
deplorable 1   |     |   Comment #54
Thanks for the heads up that's what I figured. A couple others I'm looking at are Great Southern Bank and First Advantage Bank. Both allow cc funding not sure about residency restrictions.
pgroove_fan
pgroove_fan   |     |   Comment #86
First Advantage has limited new applications to KY and TN for some while now. The current "open account" links still make this statement:

"At this time we are only accepting applications from the states of Tennessee and Kentucky. If you proceed with this application a full credit report will be ordered and used to verify your identity."

I cannot state whether the credit report pulled is hard or soft as I opened my own account in person at the Nashville Branch back in April.
deplorable 1
deplorable 1   |     |   Comment #93
Thanks pgroove_fan. The search continues every time I find a bank or CU that has short term CD's with cc funding of $5,000 or better it's always residency restricted.
#14 - This comment has been removed for violating our comment policy.
c_q
c_q   |     |   Comment #16
I got curious about how often there was dissent within the meeting voting - I know it's hard to have consensus every single time, but this seemed unusual with two different dissents, one below and one above the approved action. Found a web site that the (st louis) fed itself maintains to track dissent in voting since 1936 https://www.stlouisfed.org/fomcspeak/history-fomc-dissents - so although not unheard-of, this sort of 'two-way dissent' as seen here most frequently happened in the late 70s through about 1990, with only a few isolated instances before and after.
Bill Barr
Bill Barr   |     |   Comment #17
Trump wants rates lowered for two reasons: to help his re-election prospects, and to personally profit by paying less interest on his massive personal debt. He could care less about what is good for the economy, the country or savers. The Fed has caved to pressure from Wall Street and Trump. Obviously, raising rates has NO economic justification.
Bill Barr
Bill Barr   |     |   Comment #18
Previous message should have read: Obviously, LOWERING rates has NO economic justification.
Reality
Reality   |     |   Comment #21
#18
Yes it does if you consider the MARKET forces at work.
jimdog
jimdog   |     |   Comment #20
Bill, don't agree with your take on Trump but respect your opinion.
Wishfulthinking
Wishfulthinking   |     |   Comment #25
For three reasons, Bill Barr. 3rd is to keep the stockmarket pumped up.
Anonymoose
Anonymoose   |     |   Comment #31
*OBAMA'S FED CHAIR JANET YELLEN AGREES WITH TRUMP: FED SHOULD CUT RATES

Ex-Federal Reserve Chairwoman Janet Yellen told Colorado economists at a meeting Sunday evening that she agrees with President Donald Trump about cutting interest rates."
...
https://www.newsweek.com/obama-fed-chair-janet-yellen-agrees-trump-cut-interest-rates-1451545
bbb
bbb   |     |   Comment #34
A lot of good it does now that he has replaced her with someone he hates.
deplorable 1
deplorable 1   |     |   Comment #35
That's why I called her 0% Yellen. If she ever raised rates I would have had a heart attack. All she did was keep rates at 0% her entire time as FED chief Except for when the FED had lost all credibility and after Trump got elected. I disagree 2.5% was in no way high for current economic conditions trade wars and all. Think about what would happen if we really did get a recession instead of just recession speculation. How long would it be before negative rates would come up? I don't want to see that happen things could get really ugly including the stock market.
Anonymoose
Anonymoose   |     |   Comment #32
Yes it's Trump's evil plan to save taxpayers billions of dollars on interest cost on the debt, save the jobs of millions of people who would be out of work with higher cost of corporate debt, and increase the value of the savings of tens of millions Americans with pension plans and 401Ks is invested in equities.

He's a one-man evil empire I tell you! Oh the humanity!
deplorable 1
deplorable 1   |     |   Comment #36
But moose he is doing it on the backs of savers(who are also taxpayers) who choose not to speculate in the market. He is also doing it in good economic times which is unheard of. So we save some money on taxes which is good but lose money on savings so we have a wash. Don't get me wrong Trump was and is the best choice by far I just disagree with him on this particular issue. It's not like FED rates were actually too high like 6%.
Anonymoose
Anonymoose   |     |   Comment #37
You have a choice. Lower rates on your savings for the time being or virtually guaranteed Democrat control of the White House and Congress next year. You have to decide which is the priority. The FED didn't raise rates for 8 years when President Obama was in office. But suddenly, when President Trump was elected it all of a sudden became the right thing to do. It was a political decision pure and simple, and the higher rates threatened to undo everything President Trump has accomplished.

President Trump didn't invent deficit spending, he didn't invent the enormous debt he inherited nor any of the other systemic problems in the economy. But he did achieve some outstanding accomplishments towards making the economy better for EVERY American and unless these can be given the necessary time to achieve fruition, he will not be reelected.

Will your return on your savings accounts be more valuable to you with Democrats in charge? Listen to their platform and then you have to make that decision.
bbb82
bbb82   |     |   Comment #39
I like how everyone mentions that rates were at zero for Obama, but also neglect to mention the great recession. Like it never existed. Hey, I didn't vote for Obama either time. But at least I'm not selectively revising history.
Sam Kiggle
Sam Kiggle   |     |   Comment #40
bbb82, there is only one person in america claiming to have earned 0% for 8 years.

Ignoring that the 30 year treasury recently hit an all time low yield, despite a "booming" deficit fueled record expansion.
deplorable 1
deplorable 1   |     |   Comment #75
So we had 8 years of great recession? Funny I seem to recall that every article was claiming that we were in a recovery for about 6 years with no rate hikes during that time. I really don't want to get into the whole housing crisis again but Bush didn't cause that either.
#48 - This comment has been removed for violating our comment policy.
#49 - This comment has been removed for violating our comment policy.
deplorable 1
deplorable 1   |     |   Comment #55
Hey moose I would rather have FED rates back at 0% rather than have Democrats in control again so there's your answer. If Trump is talking temporarily lowering rates and then raising them later then he need to say that. I hear negative rates and think Japan.
MAGA
MAGA   |     |   Comment #56
deplorable 1 raise the roof on that comment! The economy is actually fairly strong right now. Thoughts one the Chase Sapphire Banking $1,000 Upgrade & New Account Offer? Chase has a $600 checking/savings offer right now also which they have been pumping. Any idea if you can do both?
deplorable 1
deplorable 1   |     |   Comment #95
@MAGA: It looks like you could do both according to DoC:
https://www.doctorofcredit.com/chase-sapphire-banking-1000-upgrade-new-account-offer/
I prefer the $600 offer myself because it looks like you have to maintain the $75,000 balance for 6 months to avoid any fees. The interest rate is a laughable .01% so quite a bit of lost opportunity cost. However if you plan on using them for investments anyway for the free trades the $1,000 bonus may make sense if you have at least $75,000 to invest. Looks like Ken has the same take on this bonus here:
https://www.magnifymoney.com/blog/reviews/chase-sapphire-bank-account/
Diogenes
Diogenes   |     |   Comment #76
D1: that's just sad . . .
Anonymoose
Anonymoose   |     |   Comment #80
All in all it's just another brick in the wall. :)
Diogenes
Diogenes   |     |   Comment #77
The Fed did start to raise rates while Ovama was in office . . . get your facts straight. All Trump has done is make the rich richer and the environment poorer, and he is a yuge liar and cheats at golf. Vote Democrat in 2020,
CuriousDave
CuriousDave   |     |   Comment #87
"Savers" does not fit the profile of those who vote for him. He attracts risk-takers like himself, typically those working with other people's money. After all, he built his own empire with debt. Real estate values are especially sensitive to interest rates and the more rates have fallen, the more the demand for RE has grown generally, and the more the value of his own RE portfolio has increased. His approach has therefore earned him two things: admiration that translates to votes, and growth in his wealth.
deplorable 1
deplorable 1   |     |   Comment #96
Come on CuriousDave you really think Trump wanted to be president to make money? He donates his pay to charity and is probably losing a ton of money letting someone else manage his businesses right now. He most definitely didn't become president for financial gain that's nonsense. Obama and Biden sure came out far wealthier though..................just saying.
I'm the Man
I'm the Man   |     |   Comment #97
deplorable 1 Comment #96 No I do not think that but, I do think Nacy Pelosi and Biden Time who have been living off the US Government for years and both are multi millionaires.
Diogenes
Diogenes   |     |   Comment #78
Moosey: that's not how the federal debt works, cutting rates won't save billions. And wait till those 401k plans get a correction taste having been built on this market bubble.
Anonymoose
Anonymoose   |     |   Comment #81
I get it I get it, Democrats relish the thought of millions of people losing their jobs and all their savings and for the economy to collapse so that they can gain more political power in 2020. They're doing everything in their power to make that happen. I already know that, they've been hand-wringing and salivating over that prospect since President Trump was elected. Unfortunately things haven't gone their way and in fact there are more jobs and people have more money in their pocket than ever before.

With regard to federal debt "not working that way," the US Treasury regularly issues new fixed income securities. If rates go up and it has to sell the securities at higher rates does it cost taxpayers more or less to service the debt created by those new issues?

Take your time, I know it's challenging.
deplorable 1
deplorable 1   |     |   Comment #83
So Poca......whoops Elisabeth Warren was on Colbert the other night and he asks her point blank "will the middle class taxes go up to finance her medicare for all plan?" She refused to give him an answer even though he primed her by saying that would be ok because everyone would have healthcare then. She claims that her plan would be financed by a 2% tax on those who make over 50 million a year. I wonder if anyone has told her that's a whopping 205 people! Democrats are really bad at math.
https://www.marketwatch.com/story/heres-how-many-people-make-more-than-50-million-per-year-in-wages-2018-10-18
Diogenes
Diogenes   |     |   Comment #90
Moosy: not all those bonds mature at once, and we've had a decade of low rates. Show how you calculated your billions in savings and when that it will happen.
Mak
Mak   |     |   Comment #19
First the rates were going to keep moving up according to the majority on this blog even after the yield on the 10 year bond started to tank.... then the news was the fed was going to lower rates and when they did the majority on this blog started talking about zero rates and negative rates and then what happened, the yield on the 10 year bond moved up.... maybe you should give up on trying to make predictions and just deal with whatever happens. Neither the fed or Trump are reading this blog in case you didn't know..:). One more thing... use a 5 year ladder and stop trying to pick the best rate or wait for the best rate.... just a suggestion.
deplorable 1
deplorable 1   |     |   Comment #23
@Mak: Because there have been several times where I locked in high rate CD's by timing FED moves just before rates dropped. Also many times where I liquidated investments to take advantage of rising rates both on liquid cash and CD's. Up until now this was a fairly easy task. With Obama I predicted 0% for 4 years on election day twice. With Bush 5% with Trump 3%. Just look at this chart and imagine locking in 5 year or longer CD's at each interest rate peak over the years. https://www.macrotrends.net/2015/fed-funds-rate-historical-chart
Then compare what you would have earned to stock market returns all with 0% risk and FDIC insurance. This is how I used to invest before I was in the stock market. I started investing in CD's and watching FED rates back in the 80's if you look at the chart you can see why.
MAGA
MAGA   |     |   Comment #26
Wow over 20% in 1980. I'll bet they didn't have long term CD's back then? BTW Greenspan lowered rates to 1% back in 2004 and it was another 4 years before the big one hit. So all this recession talk by the desperate left is nothing but hot air!
Mak
Mak   |     |   Comment #29
#26... you could have bought a 30 year treasury bond back then, they were not callable and the people that bought it at the right time earned 15% a year for 30 years....way way outperforming the stock market.
deplorable 1
deplorable 1   |     |   Comment #59
@#29: Thanks Mak now I'm depressed! lol
Wishfulthinking
Wishfulthinking   |     |   Comment #27
So have you reached that billionaire status yet? Or haven't you made enough yet with all your investing finesse?
deplorable 1
deplorable 1   |     |   Comment #30
As the late T. Boone Pickens once said "The first billion is the hardest". There were long term CD's back then but I didn't have much cash Maybe $5,000 I was just a kid cutting lawns/shoveling snow and doing odd jobs. My parents invested in t-bills and did pretty good though.
Mak
Mak   |     |   Comment #28
deplorable... If you have a 5 year ladder set up, as an example;e you have 5 $100k CDs one for each year of the ladder, you will have a CD maturing every year so actually you have a one year CD at a 5 year CD rate...... when the next CD comes do you just buy the highest 5 year CD, always getting the higher 5 year rate. You're not buying a 5 year CD and then waiting 5 years because you have one maturing every year.
Anonymoose
Anonymoose   |     |   Comment #38
And by the time you are 140 you will amass quite a tidy sum!

Probably the most important part of investing is to be sure you have some capital assets that can grow faster than inflation. For most of the last century, instruments such as bank CDs have been losers to inflation. You receive negative inflation adjusted returns. You have to supplement with things that have the potential to grow faster than inflation to offset your losses.
111
111   |     |   Comment #41
I have to agree with # 38. Additionally, an incredible amount of money has been lost by folks who first sold into the stock market downturn in the Great Recession, then compounded that error by not getting back in the market at all until far later. Perhaps many are still not in. All studies show that a simple diversified 80/20, 70/30 or 60/40 equity/fixed income mix has outperformed nearly all else, with reasonable risk, over 90% of 5-year time periods, easily beating inflation. (The aged should perhaps increase the fixed income component somewhat, reducing risk but also return.)

This is unless one does something wondrous - and unlikely - like putting everything into 30-year T-bills when they are 15%.
gregk
gregk   |     |   Comment #46
This is erroneous, - at least for me personally. While my lifespan extends back considerably less than the last century, during most of the period I've been investing in CD's yields have comfortably exceeded the rate of inflation. For example in the late 90's into the early 2000's I recall 7 year Penfed CD's (and also at Etrade Bank) paying 7.75%, - quite considerably above inflation over the holding period, - and other instances abound I could specify as well.
deplorable 1
deplorable 1   |     |   Comment #57
Well if you invested at or near the interest rate peaks in long term CD's you would have also beat inflation. This is because when these CD's matured rates would have dropped and then recovered again when it's time to renew. Supplement that with bank bonuses, 0% no fee balance transfers and CC funding etc. and you just smoked inflation with virtually no risk. Don't get me wrong I invest in the market as well for the potential gains but it doesn't always pan out.
#66 - This comment has been removed for violating our comment policy.
deplorable 1
deplorable 1   |     |   Comment #73
So now Bush not only caused the housing crisis but was also responsible for the world economy tanking? That Bush sure had a lot of power controlling the world like that. You are aware that Bush was the one to raise red flags about Fannie and Freddie way before anyone else saw problems right? Dems controlled the Senate banking committee and did absolutely nothing to prevent the housing crash. In fact they trumpeted how successful they were in getting all those folks into homes they couldn't afford.
Mak
Mak   |     |   Comment #82
#38... I was referring to the fixed income side of his portfolio...doesn't have to be all one or the other.
Anonymoose
Anonymoose   |     |   Comment #89
I don't disagree Mak. Just wanted to make the point that it's important to own some capital assets that can appreciate, especially when you're in the accumulation phase of your retirement planning, otherwise there's a good chance inflation will eat you alive.
#64 - This comment has been removed for violating our comment policy.
Mak
Mak   |     |   Comment #45
Now that I'm hearing that the advice on here is to buy stocks I wouldn't be surprised if we get a good pullback soon....:)
Anonymoose
Anonymoose   |     |   Comment #47
That would be excellent. As all of US stock market history has proven, that would present a great buying opportunity.
The Boss
The Boss   |     |   Comment #50
This is a savings account website. Take your stock market investing over to morningstar.com. Thank you.
Anonymoose
Anonymoose   |     |   Comment #51
How can you have an informative discussion about the FED, interest rates and savings accounts without including discussion about capital markets and politics? It's like having a discussion about Christianity where you can't mention Christ.
Ricochet
Ricochet   |     |   Comment #52
As in the case of both, they lead to RANTS
like #37
Anonymoose
Anonymoose   |     |   Comment #60
How is #37 a "Rant?" Because you disagree with it? I don't see anything rantish about it at all. It expresses a point of view that is central to this topic.
deplorable 1
deplorable 1   |     |   Comment #94
I thought you described the 2020 choice perfectly Anonymoose. I for one am willing to deal with short term pain for long term gain. Not a difficult choice at all. For decades we only had the non-choice of 2 establishment politicians. Last election was a game changer because we actually had a real choice between 2 diametrically opposed candidates. Shockingly after 8 years of Obama Americans made the right choice. I don't think any of us Trump voters regret that decision particularly after what we have witnessed with the media, deep state and radical Democrats ever since. Once again in 2020 we will have a real choice to make again and hopefully most Americans will make the right one.
Jamie
Jamie   |     |   Comment #103
Anybody but tRump! That dotard has royally ****ed up everything he touches. The best thing that could happen is that he has a stroke! Yes, I admit that I voted for him, shame on me! I couldn’t stomach Hilary, and I wish another could beat him in 2020, as I can’t stand any of the Democrats!
deplorable 1
deplorable 1   |     |   Comment #112
Sure Jamie here are all the things he "****ed up":
1. Unemployment at 50 year lows
2. Wage increases better than all 8 years of Obama
3. Stock market at all time highs
4. Took interest rates from 0% to 2.5% allowing us to lock in some 3-5% CD specials and 2.5% savings accounts.
5. Stopped the labor force participation rate from dropping and reversed the trend
6. Securing the border
7. Made us a net energy exporter
8. Had the guts to take on other countries who are ripping us off on trade
9. Cut taxes for almost all individuals and businesses
10. Exposed the media and deep state government corruption at the highest levels
If that's what "****ing up" looks like I'll take more of it please!
deplorable 1
deplorable 1   |     |   Comment #58
I agree interest rates don't exist in a vacuum and the surrounding environment is critically important. Look at what the FED is doing right now are they just focusing on numbers and data? Nope they are doing "insurance" rate cuts due to trade war fears. Not sound FED policy IMO but this is where external forces can effect rates.
#65 - This comment has been removed for violating our comment policy.
DCGuy
DCGuy   |     |   Comment #67
https://www.washingtonpost.com/outlook/five-myths/five-myths-about-the-great-depression/2019/09/06/ce6fa63e-cf54-11e9-9031-519885a08a86_story.html
DCGuy
DCGuy   |     |   Comment #68
"Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment."

https://www.wsj.com/articles/SB122576077569495545
111
111   |     |   Comment #92
Following 1932, the Democrats essentially ran against Herbert Hoover for the next 60 years - long after he was dead. Guess you're regurgitating that revered tradition.
#79 - This comment has been removed for violating our comment policy.
#84 - This comment has been removed for violating our comment policy.
Delete Me
Delete Me   |     |   Comment #98
Does anyone else hate dealing with money matters? I know its a basic necessity of life, but its not really fun, and its certainly not a "hobby" like some of these guys claim. I need everything to be very simple and uncomplicated! I don't want any financial stress. Why so some people make it so hard? For me, just an easy savings account, a couple of cd's, and a short easy tax return. If I was rich I would worry too much.
deplorable 1
deplorable 1   |     |   Comment #99
Back when interest rates were 5% in all the banks this was all easy and stress free. All I had was a savings account, checking account , money market account and a couple of CD's. I could average around 6-7% without owning stocks. Simple easy and uncomplicated.
In order to make the same rate now it requires several accounts and a lot more work. The most complicated and stressful of all things discussed here on DA are probably the rewards checking accounts. These are too time consuming for me personally.
Like it or not we all have to deal with finances. I just figure since I have to deal with all this financial complication anyway I may as well just make it a hobby and earn the highest rate possible for the effort.
Gone Fishin
Gone Fishin   |     |   Comment #100
Its a whole lot easier to just sign up for social security as soon as possible. IMHO.
GET IT while it lasts..... here comes Pocahontas. LOL!

Pass me another beer.
Reality
Reality   |     |   Comment #101
I'll guarantee you weren't earning 6-7% on a million bucks or, to use real numbers, $60K - $70K per year. Your machinations may produce higher than "average" rates but not on significant capital. It would be a complete waste of my time opening and closing accounts just to make a few hundred bucks.
deplorable 1
deplorable 1   |     |   Comment #105
@Reality: I certainly was. I earned $30,000 on the bank's money with 0% no fee balance transfers to the tune of $500,000. Add the interest I earned on my $500,000+ at the time and that's exactly what I was earning.
Saver
Saver   |     |   Comment #107
Right. @105, it's the internet. Anyone can claim anything. In any case, get a real job and you can earn much much more in less time.
deplorable 1
deplorable 1   |     |   Comment #108
@Saver: I was working 18 hr. days back then. That was a side gig.
111
111   |     |   Comment #102
You're kidding, right? RCA checking accounts are amazingly easy. As long as you qualify re. availability, you read the T&C, open the account, enter their qualification window into your online calendar (beginning date to end date - usually but not always symmetrical with calendar month), and start using the debitcard, often solely on the web. For the few that suggest more stringent requirements and are worth that extra attention due to better rates (e.g., TAB), you use it throughout the month the required number of times, plus maybe 1 or 2. Done. Rinse and repeat next month.
deplorable 1
deplorable 1   |     |   Comment #104
@111: I didn't mean complicated as in not understanding the terms just way too much work for me personally. I just have way too many other deals going on to track RCA's at the same time. I'm not knocking them The TAB and Orion deals look pretty good if you can make it work for you. We already carry around 10 rewards credit cards to max out the various changing categories 2-7% cashback. Debit card transactions are a no go for us. Plus I already have $60,000 earning 5% with no work required(all automated).
Ricochet
Ricochet   |     |   Comment #109
My Dad could have beat up your Dad

ANTICIPATION IS KILLING ME !
Trump is best POTUS since Reagan
Trump is best POTUS since Reagan   |     |   Comment #106
There is a noteworthy exception to this ongoing "rate cut fever". PSECU announced this (Monday 9/23) morning their three year, 3.25% APY, CD will be available to all for at least one more week. This CD also includes a somewhat obscure and complicated add-on feature. It is not a traditional add-on like for example the GTE 3.3% five year CD was and remains for those who own that CD. But the PSECU CD does incorporate some limited add-on aspects which might help certain owners in special situations. And PSECU may be joined by anyone who has $10 and a dream of better CD yields.

It is also worth mention that the NFCU five year 3.25% APY CD offer remains good today. This is an excellent deal. But unlike with the PSECU deal which will hold for a week, the NFCU interest rate could be different tomorrow, possibly making matters uncertain for one commencing today from a scratch start.
Bill Barr
Bill Barr   |     |   Comment #110
Trump is doubling down and again calling for negative rates. What is wrong with this guy?
deplorable 1
deplorable 1   |     |   Comment #111
I'm hoping he just wants rates low temporarily until the trade deals are done and then have them go back up. He needs to state what his long term intentions are though not just "I want 0% or negative rates". Look at all the Democrat proposals. They would have us blow up the debt sky high and usher in a era of negative interest rates permanently like Japan. Then they would jack up all our tax rates to pay for it(including the middle class). At least with Trump I'm paying less taxes overall and the economy and stock market are doing well. Consumers are spending and have more money due to wage increases. I think after the elections are over rates may then recover but only if Trump wins.
Die Broke
Die Broke   |     |   Comment #114
I will be paying slightly less taxes only because the interest rates are tanking.

Never saw a wage increase.

Consumers are spending, and also ringing up tons of personal debt. A recent report says consumers now owe more credit card debt than ever before.

A recent article said banks are getting back into sub-prime loans again?

But of course none of that is Trump's fault. Banks and Wall Street are greedy and corrupt, and people are stupid when handling their personal finances.
Reality
Reality   |     |   Comment #115
#114
Some figures are just not convenient to mention...
40% pay credit card balance each month!
It's the 60% who don't that get in trouble and it's their own fault.

It's like a bunch of college kids living high for four or five years at their elitist schools telling me, after the fact, that I have to pay their bills because THEY made a bad decision. Is that even remotely fair? Of course not; it's nothing but theft after the fact. I have three degrees, lived in cramped quarters during college, worked and paid for it all within a year of graduation. I could not conceive of asking you to pay for it.
Luvcd
Luvcd   |     |   Comment #113
Mr. T is first and always a real estate person and likes low rates. Second the big tax increase for most is only 8 years ahead...plan accordingly.
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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Fed Says It’ll Be Patient on Rates - CD Strategies for 2019

As expected at the FOMC meeting, there were no changes in the federal funds rate. However, key language of the FOMC statement did change which sends a signal that the Fed will likely pause on rate hikes. The following sentence that was in the December FOMC statement is gone:

The above sentence has been replaced in the January FOMC statement by the following:

All voting members voted for today’s policy decision. There were no dissents.

In addition to the change in the FOMC statement, the Fed issued a separate statement on balance...

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