Cash Is No Longer Trash

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If you were to ask someone on the street how much they are earning in their bank account, chances are they will give you a number under 1%. That may be true for some of the bigger banks that refuse to budge on the interest they pay on customer deposits, but you don’t have to settle for low rates. Whether you have a vacation fund, emergency fund, or rainy-day fund, there are options that will get you a better interest rate.

If you are earning under 1% in any of your savings accounts, you are really losing money due to inflation. The July 2018 reading for inflation was 2.9%. That means if you are earning .10% on your savings, you lost 2.8% of your purchasing power over the last year!

As interest rates have been creeping up with inflation, it becomes important to ensure your savings accounts are keeping up. Some larger institutions have kept their interest rates very low, while some are closer to matching inflation. And, if you don’t need the money extremely liquid over the next 5 years, there are some options to help you exceed the rate of inflation.

Here are some of the savings rates from the more popular big banks in the US:

Bank

APY Minimum Balance

Wells Fargo

.01% $0

Wells Fargo Platinum Savings

.10% $250,000
Bank of America .01%

$0

Bank of America .02%

$100,000

JP Morgan Chase Standard

.01%

$0

JP Morgan Chase Relationship .09%

$250,000

Source: Wells Fargo, Bank of America, JP Morgan Chase

Not very much interest, especially not enough to keep your purchasing power in check. Now let’s look at some banks that are offering a better interest rate:

Bank

APY Minimum Balance

iGObanking

2.25% $25,000

CIBC Bank USA

2..10% $1

HSBC Direct Savings

2.01%

$1

Synchrony Bank 1.85%

$0

Barclays 1.85%

$0

Goldman Sachs Bank 1.85%

$1

Source: Wells Fargo, Bank of America, JP Morgan Chase

Considering the Federal Reserve’s target inflation rate is 2%, these rates are closer to the inflation level of today, meaning you can maintain your purchasing power.

There are some additional options to earn an additional yield, if you don’t need the money over the next 1-5 years. For example: A savings fund that will be a down payment on a house in 5 years. You wouldn’t want to risk your funds in the market because 5 years isn’t enough time, but you want to keep pace with inflation plus some. A CD or MYGA (hybrid between a guaranteed annuity and a CD), could be a better alternative to a savings account. To show you how these compare to the rates on savings accounts, let’s look.

CD Rates:

Institution

APY Term Minimum Deposit

Marcus: Goldman Sachs

2.55% 1 Year $500

Mercantil Bank

2.75% 2 Years

$500

Citizens Access 3.00% 3 Years

$5,000

Capital One 360 3.00% 5 Years

$0

Source: Bankrate

MYGA Rates:

Institution

APY Term Minimum Deposit

Bankers Life

3.8% 5 Years

$10,000

Fidelity & Guaranty 3.8% 5 Years

$20,000

Source: Tarkenton Financial

Many are probably more familiar with a CD than a MYGA. A MYGA, which stands for multi-year guaranteed annuity, is essentially a CD with a fixed interest rate, but it’s issued by an insurance company. The reason it can be a great CD alternative is that it does not have to be annuitized, but it has the option to. So, it can be rolled into a new MYGA or tax deferred account at the end of the term without tax consequences. Since a MYGA is tax-deferred, you wouldn’t want to take out the funds until you reach age 59 ½, due to a penalty. Choosing between a MYGA and CD as a savings alternative will likely be based on your age, financial goals for the account, and time-frame until you need the funds.

Talk to us if you need help with savings or keeping pace with inflation.

For the record: I am not making a recommendation for any of these banks. These are examples of what current financial institutions are offering.

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