Lift-off! After punishing savers with two years of near-zero short-term interest rates, the Federal Reserve expects to hike its benchmark rate seven times in 2022 in an effort to slow rampant inflation.
What this means for savers: Much improved returns on your cash because yields on many government-insured deposit accounts could rise quickly.* By the end of 2023, short-term interest rates are expected to hit a range of 2.75% to 3%, the highest mark since March 2008. Despite this good news, not every institution or type of deposit account will keep pace with the Fed’s actions. And higher-than-normal inflation means that your money is losing purchasing power, so it’s vital to maximize the yields your cash earns.
Our Bottom Line Personal expert Ken Tumin has sifted through thousands of savings, money-market, checking and CD offerings to pinpoint the best ones for your situation and the best strategies for the current environment…
Money-Market and Savings Accounts
Strategy: Move your money to Internet-only or online banks and credit unions. They tend to respond to Fed rate hikes by raising their own rates on high-yield deposit accounts much faster than major banks. If high inflation persists and the Federal Reserve rate hikes come faster and higher than expected, these accounts are your best choice. Money-market accounts typically give you more flexibility than savings accounts, allowing you to write checks and use debit cards and ATMs. But keep in mind that many institutions limit consumers with both types of accounts to six withdrawals per statement cycle (typically one month).
Best high-yield savings and money-market accounts now…
Affinity Plus Superior Market Account. The credit union pays a 1% annual percentage yield (APY) on balances up to $25,000. Above that amount, it pays 0.35% APY. To earn the highest rate, you must sign up for paperless e-statements and direct-deposit a minimum of $500 each month (from payroll, Social Security or unemployment). If you don’t meet these requirements, your APY is 0.1% for that month. Membership is open to anyone who joins the Affinity Plus Foundation ($25 donation) or who lives, works or worships in select areas of Minnesota, which has 26 branches. AffinityPlus.org
ZYNLO Bank Money Market Account. The Internet-only bank offers a 0.8% APY on balances up to $250,000—with no other requirements. For balances above that, you earn 0.1% APY. ZYNLOBank.com
Ivy Bank High-Yield Savings Account. The digital-banking division of Cambridge Savings Bank in Massachusetts pays a 0.7% APY up to a maximum balance of $1 million. The minimum balance level to earn interest is $2,500. For balances below that, you earn 0.05%. IvyBank.com
If you prefer a traditional bank with many brick-and-mortar locations…
Capital One 360 Performance Savings Account. The APY is 0.4% on all balances, with no minimum or maximum deposit requirements. You can make deposits and withdrawals through electronic transfers or at Capital One physical branches and mini branches called “cafés.” There are more than 750 branches and 30 cafés in Connecticut, Delaware, Louisiana, Maryland, New Jersey, New York, Texas, Virginia and Washington, DC. CapitalOne.com
Strategy: If you don’t need a large network of brick-and-mortar branches, a high-yield rewards checking account offers the highest rates on FDIC-insured accounts without having to tie up your money. Your banking is done online, through wire transfers, paper checks and networks of affiliated ATMs. Typically, these accounts require that you meet monthly minimum requirements, such as making 10 to 15 debit-card transactions…paying at least one bill online…signing up for e-statements…and/or having at least one recurring monthly direct deposit. Otherwise, for the months in which you don’t meet requirements, the default APY could be as low as 0% and ATM fees are not reimbursed.
Best rewards checking accounts now…
Evansville Teachers Federal Credit Union Vertical Checking. 3.3% APY for balances up to $20,000, but no interest for balances over that amount. You will be reimbursed up to $15 a month for ATM fees. If you fail to meet minimum monthly requirements—at least 15 debit card purchases…at least one direct deposit…at least one online or mobile banking login…and receiving e-statements—you earn 0% APY on your balances. Membership is open to members of the Mater Dei Friends & Alumni Association ($5 donation) or employees of Evansville Teachers Association in Indiana. There are 28 branches across Indiana, Kentucky and Tennessee. ETFCU.org
Market USA Federal Credit Union High-Rate VIP Free Checking Platinum Tier. You get 3.01% APY for balances up to $15,000. Above that amount, 0.01%. ATM fees are reimbursed for eight transactions a month. If requirements—including at least $250 in monthly direct deposit, at least 12 debit card purchases of at least $5 each and at least three bill payments as well as receiving e-statements—are not met in any given month, the APY is 0.01% on all balances. Membership is open to residents of eight southern and mid-Atlantic states and Washington, DC, as well as those who join the Market USA Cares Foundation ($5 donation). There are two branches in Maryland and one in South Carolina. MarketUSAFCU.com
Certificates of Deposit (CDs)
Strategy: Check online banks and small credit unions for special deals on short-term CDs with maturities ranging from 10 to 18 months. With yields from deposit accounts likely to rise this year, it makes little sense to lock into longer terms, especially because those rates still are so meager. Recently, the best five-year CD offered a 1.85% yield, but you can earn 1.25% on an 18-month CD. If inflation moderates in the second half of 2022 and the Fed pauses or slows rate hikes, short-term CDs will be a better choice than a money-market or savings account. Just be sure you won’t need this money in an emergency because early-withdrawal penalties are steep.
Nationally available, short-term CDs…
Marcus by Goldman Sachs 10-month High-Yield CD pays a 1.1% APY with a $500 minimum and
$1 million maximum purchase. There is an early-withdrawal penalty of 90 days interest. Marcus.com
Synchrony Bank 13-Month CD offers a 1.15% APY and has an early-withdrawal penalty of 180 days’ interest. SynchronyBank.com
USAlliance Financial 18-Month Certificate pays a 1.25% APY with a $500 minimum purchase. The credit union is open to anyone who joins the American Consumer Council ($8 donation) or who lives, works or worships in any of several counties across Massachusetts, Connecticut and New York. The early-withdrawal penalty is 360 days’ interest. USAlliance.org
Government Savings Bonds
Strategy: Buy Series I Savings Bonds now and hold them for at least one year. Last September, Bottom Line Personal readers were encouraged to take advantage of these unique bonds whose yields adjust every six months depending on inflation rates. The six-month yield through this April 30 was a very impressive 7.12%. Given the likelihood of prolonged inflation, I-bonds could be the best deal of all for savers. The yields for the next two six-month periods—May 1, 2022 to October 31, 2022…and November 1, 2022 to April 30, 2023—are expected to be elevated as well. Caveats: I-bonds must be held for at least 12 months, and there is an early-withdrawal penalty of three months’ interest if you cash out within the first five years. However, even if you cash out after one year, you’ll earn far more interest than in a deposit account or a one-year CD. Also, there is a maximum purchase of $10,000 per person each calendar year, but you can potentially buy much more. Example: You and your spouse each can invest $10,000…you can buy another $5,000 with your tax-refund money…and if you have kids under 18, you can buy $10,000 in each of their names.
I-bonds can be purchased commission-free at TreasuryDirect.gov after you open an online account and link it to your bank account. Be sure to use a bank account that you plan to maintain for the long term. Reason: It’s a hassle to make changes to your TreasuryDirect account because the government requires you to print out paper forms and mail them in.