Submitted by Matttt21 t3_yi90pt in personalfinance
Moving money into my Ally savings account for now, would like to do CDs but it seems a little bit of a bad idea to me with rising interest rates. Is between 5 and 6 percent something we could realistically see on online savings accounts/CDs six months from now? Thanks in advance and I now no one can predict the future, just wondering if the current rate increases continue.
BY the beginning of February the Fed is expected to raise their Fed Funds rate to about 4.5%. Could go up to 5%. Today it's about 3%. Beyond that, you will have to make some guesses as to what the markets will do with interest rates.
You can buy a 3 Month T Bill and get 4.1% right now.
High yield savings accounts and CD’s suck right now compared to just buying treasury bills. Banks are just taking your money at 2.5% or 3%, and buying T Bills paying 4%+.
Cut out the middle man - just buy treasury bills yourself.
question - is this just true of the present moment or is this generally true?
True at the present moment. It’s definitely a bit whacky right now - CD’s have traditionally been a bit better than corresponding treasury bills. The spread will probably diminish, but for right now putting money on treasuries is absolutely the best play. Treasuries are state and local tax exempt as well, as opposed to bank interest.
This.
I've loaded a bunch of my savings into IBonds last year and this year. 7-9% interest rates during that time.
Obviously, not the same as HY savings account where you can pull the money out for whatever at any time, and still different from a CD where it is locked up for however long since IBonds have a penalty of losing 3 months interest on any funds you withdraw before 5 years. But, if you don't need that kind of liquidity (if you are looking at CDs, you probably don't) and you can keep the bonds for more than a year before cashing out, even now as the IBonds interest rate is going down, you probably would come out ahead of the current 2-3% rates on CDs.
Between 5% and 6% for HYSAs within 6 month?
Unlikely.
For longer term CDs?
Maybe, but that still seems like a reach.
Just my opinions though, and no one has a crystal ball.
As others said, 5-6% would be nice, but not likely. The real question is why are you looking for this? If you dont have an emergency account, Ally is a fine place to park it. There's other options too that are competitive to Ally. I opened a few CDs a few years ago, at that time were highest I could find, but now my ally account is higher. The question is what are you going to be saving this money for? Do you have a fully funded 2022 IRA, and do you have a plan to fund 2023?
For perspective the "Banker's Ditty" used to be: pay 3% on deposits, lend at 6%, and you're on the golf course by 3pm.
Prior to 2008 it was pretty normal for savings accounts to pay something like 2-4%, more if you locked up money in a CD or something for a few years. Mortgages were in the 6-8% range, less if you got an ARM or something. Borrowing money at 8-10% if you had poor credit or something was common.
This was relatively normal for many decades. Many lost this perspective after 2008 and the slow-motion intervention since then.
If savings account rates get to something like 7-8% then most people have little reason to invest their money and the economy stagnates. The central banks try to keep this in the sweet spot of around 2-4%.
No-one knows what the fed is going to do so no-one knows where interest rates are going to go. The Fed might decide that inflation is an absolute priority and they'll jack rates again or they'll decide that economic growth is more important and they won't. No way to know which way they're going.
Just look at the CD yield curve. That should give you an idea of where banks think rates will be.
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> it seems a little bit of a bad idea to me with rising interest rates
it sounds like you are worried about interest rate risk - in this case, you might want to look into shorter-duration instruments (3-6 month CDs or short-term treasury bills). they don't pay as much, but you're paying for the flexibility to switch to better instruments should any appear.
KReddit934 t1_iuhixb8 wrote
Ah, the money that could be made if one had a crystal ball.
Sorry...couldn't resist.
No idea. Fed says they will keep raising rates, so I do expect interest on HYSA to rise...but by how much...🤔??
How much difference in total interest would it make - 4% vs. 5%? If <$100, I wouldn't even worry about it.