These banks are lowering deposit and savings rates. Where to park your cash to earn returns | Wilnesh News
With interest rate cuts from the Federal Reserve looming, investors may soon see fat cash yields start to fall. In fact, banks are already cutting back on spending. According to BTIG, three online banks lowered their 1-year CD interest rates last week. The biggest decliner was Capital One, whose CD dropped 50 basis points to 4.5%. 1 basis point equals 0.01%. Marcus, owned by Goldman Sachs, cut interest rates by 15 basis points to 5%, and Sallie Mae cut CD rates by 5 basis points to 5.1%. Meanwhile, Synchrony lowered its online savings rate by 10 basis points to 4.65%. Federal Reserve Chairman Powell said after the central bank’s July meeting that a September interest rate cut was “on the table.” According to data from CME Group’s FedWatch tool, the market expects that interest rates may be cut by at least 25 percentage points by then. As banks prepare for the Fed’s move, they are focusing more on cutting CD rates, which are locked in for the life of the product, BTIG analyst Vincent Caintic wrote in a report on Sunday. “We believe online banks are interested in moving customers towards savings rates, which are floating,” he said. “As confidence grows in the Fed’s rate cuts, perhaps a few more by the end of the year,” he added, We think online banks will be more confident about lowering deposit rates in the coming weeks. How to use your cash There are several ways to maximize your cash returns. First, you should consider not only the interest rate you’ll get, but also how much liquidity you need, says Christine Benz, director of personal finance and retirement planning at Morningstar. “The production is somewhat ephemeral – what we offer today may not be available in three months,” she said. While buying a CD is a great way to lock in an interest rate, you lose liquidity and you’ll pay a penalty if you need to access the funds before the end of the term. If you need immediate access to funds, a high-yield savings account is often the best option for immediate liquidity, Benz said. You may also consider money market funds. As of Monday, the seven-day annualized return for the Crane 100’s 100 largest taxable money funds was 5.11%. For both high-yield savings and money market funds, interest rates fluctuate. Another thing to consider is if you want insurance coverage through the Federal Deposit Insurance Corp. This is not the case with market funds. Bentz said one way to address liquidity issues and lock in some yield is to take out a term deposit ladder if you have cash needs. For example, you can purchase 3-month, 6-month, and 9-month CDs for different maturities. Another option for wealthy investors is municipal bond funds, which are exempt from federal taxes, she said. For Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, laddering assets makes the most sense for her clients. “It helps clients achieve a level of liquidity because in most cases they don’t need the money directly, but they like the idea of having some liquidity,” said Sun, a member of CNBC’s financial advisory board. Money market funds is a part of every ladder she creates. She would then move to brokered CDs, which are offered through brokerage firms rather than banks, and in some cases, municipal bonds if the investor is in a higher tax bracket. She has been purchasing brokered CDs with maturities ranging up to 1.5 years. Certified Financial Planner Cathy Curtis, CEO of Curtis Financial Planning, allocates her cash buckets as needed. She would put a month or two’s worth of expenses into a bank savings account for easy access, even though the returns would be minimal. She would then put another six months of expenses into a high-yield account. While she recommends opening a high-yield savings account in a rising interest rate environment, she’s making some shifts based on cash needs. “Given the likelihood that the Fed will start cutting interest rates starting in September, it makes more sense for clients to look at CD or Treasury bill rates that can be locked in for a year or more,” said Curtis, a member of the CNBC Financial Advisory Council. That said, if they need the money immediately, she recommends opening a high-yield savings account. Curtis has also been using money market funds and Treasury floating-rate bond exchange-traded funds to provide clients with portions of their fixed-income allocations. However, in anticipation of interest rate cuts, she began reducing these allocations and moved toward aggregate bond ETFs and flex-income ETFs, as well as 1- to 2-year Treasury bonds.
