Some CD Rates Are Lower Than Savings Accounts!
August 9, 2009 – 9:22 amDue to the economic uncertainty today I know a lot of people are hanging on to a little extra cash. My wife and I are too. And therefore I’m looking for either a CD or higher rate savings account to park a bit of cash for the near-term. For me I define the near term at 12 months, because by then our babies will have been delivered and will be well on their way to crawling. By that point I plan to take this extra cash and invest it.
So the question becomes, where’s the best place to park a little extra cash for a year? I’m looking for a save place even though it’s not a lot of money, and I’d like be able to access the funds relatively easy if need be.
Normally I would assume that CD’s would offer the best rates, because I expect to be compensated for having to leave the money in the CD for the full term (12 months). I know I can get it out if I absolutely have to, but I don’t expect to need to. Vanguard currently shows a 1.05% APY on it’s Prime Money Market fund, so that’s the hurdle I need to overcome in order to put some cash somewhere else.
After doing a bit of research I was shocked to find out that I may be able to do better or at least the same with a normal old-fashioned savings account! I searched bankrate.com for the latest CD rates and found the following:
- GMAC 1-yr CD’s have an APY of 2.95%. I’ll be honest with you though. Even though it’s FDIC insured I’m not willing to put my cash in an American auto company. I’ll pass
- HSBC has a 2.5% APY
- Countrywide is offering 2.25. Once again I’m not loving the idea of putting money into this company either. But it’s a choice.
- Several more CD’s at lower rates
Here’s what I find interesting: there are several savings accounts that yield the same or more than many of the available CD’s. Why give up access to your money for a year when you can get the same rates in a savings account?
- Discover Bank is offering 2.5% APY on a 12-month CD, and it’s not in Bankrate’s list.
- Discover Bank is also offering 2.25% APY on it’s money market fund, but the minimum deposit is $25,000. Too rich for my blood.
- HSBC offers an online savings account with a 1.85% APY
- HSBC offers a 1-year CD at 2% APY
- FBNO Direct offers a 2.6% APY on a savings account
- ETrade offers a 2.6% APY on a savings account
- ING Direct offers a 1.65% APY on a savings account (may have a high minimum though to earn this rate)
Risks:
- if rates continue to drop you might be glad you’re in a 12-month CD (or longer)
- banks can change their savings rates at any time, so you might get pulled in with a teaser rate and then see the rate drop. You can always transfer your funds to another bank, but it’s a little bit of a hassle. Etrade, ING, and HSBC have been known for a while as high-yielding accounts, so these are less likely to be teaser rates.
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One Response to “Some CD Rates Are Lower Than Savings Accounts!”
Just a couple thoughts — you, I and everyone else who files a 1040 already has money in this bank. This is a way to get some of it back.
I don’t have any money other than my sliver of the taxpayers contribution there, but I’m not worried about the GM connection within the FDIC limits. I’ve watched quite a few of these banks being formed when I was a news guy reporting on them; Office of Thrift Supervision, et al, are really fussy regulators. I don’t think they regulate the mailing of free calendars to depositors, but darn near.
I’ve wrestled with the 12-mo CD vs. same rate savings account question too. The big difference is that the CD is a contract which guarantees you get the rate for the specified time. Savings account rates can change tomorrow.
Savers might have better luck shopping for odd 10-month, 16-month or other weird maturities banks sometimes offer. Banks do that when they need to raise extra money for some specific funding, so they tend to pay more. The trade off is you may need to do some creative laddering to assure future liquid cash if you might need it then.
By Gene at www.kitchentablenomics.com on Aug 9, 2009