Viability of HYSA's and CD's as interest rates climb

[spurraider21]

For several years now I've parked non-invested cash savings at Ally in their high yield savings account. When I started there, I was getting probably about 2.5% APY, but when rates got slashed around covid, it lost its appeal.

With rates continuing to climb, their savings accounts now offer 3.6% APY

More interestingly, though, rising rates also mean you have easy, low risk options like short term treasury bills, CDs, etc, to do something with cash savings that you want to keep somewhat liquid and not tied up somewhere more volatile. In the last week or so, Ally has massively increased the yield on their 11 month no-penalty CD to 4.75%. No penalty ie you can withdraw your funds at any time, including accrued interest, with 0 fee. Caveat just being that you cant do a partial withdrawal and so you have to close out the CD.

Buddy of mine said that from January forward he basically just kept opening and closing CDs at ally as rates crept up to make sure he was always getting the top rate from their no-penalty offers.

Something I felt I should share if people were looking into options like this for non-invested money.

[Millennial_Messiah]

Yeah... even with rates over 4% it's still like $1500-1800 per month max in free interest money on three quarters of a million bucks ($750,000) invested in such CDs... not that great. Not even sustainable in this bidenflationary economy.

[spurraider21]

lol if you had 750k to park somewhere you wouldnt be here discussing financial advice and whining about car insurance rate hikes

[Millennial_Messiah]

lol if you had 750k to park somewhere you wouldnt be here discussing financial advice and whining about car insurance rate hikes

You wanna screenshot from me?

[ChumpDumper]

You want us to care.

[ChumpDumper]

I'll bite.


Yeah... even with rates over 4% it's still like $1500-1800 per month max in free interest money on three quarters of a million bucks ($750,000) invested in such CDs... not that great. Not even sustainable in this bidenflationary economy.

You have that much lying around getting no interest?

[Millennial_Messiah]

I'll bite.



You have that much lying around getting no interest?
I got about $4800 in the best fixed-income CDs my bank had to offer on 750k between Dec. and today. Today was actually the maturity day.

[ChumpDumper]

So you're doing exactly what SR21 was talking about only when interest rates were lower.:tu

[Millennial_Messiah]

So you're doing exactly what SR21 was talking about only when interest rates were lower.:tu

March 28th is my birthday, so I wanted to have a million liquid cash to take a picture of it before re-investing or looking for a house

[Millennial_Messiah]

At minimum one million

[DMX7]

So you're doing exactly what SR21 was talking about only when interest rates were lower.:tu

I don't think he said he wasn't earning interest on his money -- he said it wasn't that great, and it's not.

Interest from Savings Accounts, CDs, Treasuries is tough to make work if you're in a high tax bracket because it's treated as ordinary income so you may be paying well over 30% taxes on the interest.

But if you feel you must "park" your money, then one thing to consider is 3-month US treasuries which should yield above 5% next week after the Fed hikes rates again. I wouldn't want to go into long duration treasuries or CDs because interest rates are probably going to continue to rise (and also because they're money losers with inflation).

[Ef-man]

I don't think he said he wasn't earning interest on his money -- he said it wasn't that great, and it's not.

Interest from Savings Accounts, CDs, Treasuries is tough to make work if you're in a high tax bracket because it's treated as ordinary income so you may be paying well over 30% taxes on the interest.

But if you feel you must "park" your money, then one thing to consider is 3-month US treasuries which should yield above 5% next week after the Fed hikes rates again. I wouldn't want to go into long duration treasuries or CDs because interest rates are probably going to continue to rise (and also because they're money losers with inflation).

If the bank goes under, good luck getting all your money back.

[spurraider21]

I don't think he said he wasn't earning interest on his money -- he said it wasn't that great, and it's not.

Interest from Savings Accounts, CDs, Treasuries is tough to make work if you're in a high tax bracket because it's treated as ordinary income so you may be paying well over 30% taxes on the interest.

But if you feel you must "park" your money, then one thing to consider is 3-month US treasuries which should yield above 5% next week after the Fed hikes rates again. I wouldn't want to go into long duration treasuries or CDs because interest rates are probably going to continue to rise (and also because they're money losers with inflation).
That’s the beauty of the no penalty CD. you can close it out and reopen another one if rates go up and still pocket whatever interest did accrue during that window

I’m not suggesting CDs are a wealth building tool. But if people have some money parked that they want to keep liquid-ish and not at the risk of market forces, it’s better than leaving it in some account at a big bank literally doing nothing

[Millennial_Messiah]

If the bank goes under, good luck getting all your money back.
SVB was an outlier because it's specifically big tech, AI, automation companies etc.

The biggest banks ie. JPMChase, BofA, Wells Fargo, Citibank, USAA etc are not going anywhere.

[ChumpDumper]

SVB was an outlier because it's specifically big tech, AI, automation companies etc.
Two other banks went under last week as well.

[BD24]

I bank with ally and didn’t realize they had no penalty cds. Taking some money I had parked in their high yields saving and moving it over. Appreciate the advice SR. Your a real one.

[BD24]

Also :lol at andy still doing his I’m rich gambit which literally no one believes

[spurraider21]

I bank with ally and didn’t realize they had no penalty cds. Taking some money I had parked in their high yields saving and moving it over. Appreciate the advice SR. Your a real one.
I knew they had no penalty CDs but for a while the rates there were so similar to their regular savings rate that it wasn’t worth the nuisance. It’s within the last week or two that they hiked the rate on the CD up to 4.75

[BD24]

I knew they had no penalty CDs but for a while the rates there were so similar to their regular savings rate that it wasn’t worth the nuisance. It’s within the last week or two that they hiked the rate on the CD up to 4.75
Yea APY on the savings is currently 3.6…so 4.75 is a big jump for money that you need easily accessible

[SpursforSix]

That’s the beauty of the no penalty CD. you can close it out and reopen another one if rates go up and still pocket whatever interest did accrue during that window

I’m not suggesting CDs are a wealth building tool. But if people have some money parked that they want to keep liquid-ish and not at the risk of market forces, it’s better than leaving it in some account at a big bank literally doing nothing

As rates rise, the face value of the CD should fall. So even though you can sell it with no bank penalties, I think there’s a chance you lose principal.

[spurraider21]

As rates rise, the face value of the CD should fall. So even though you can sell it with no bank penalties, I think there’s a chance you lose principal.
its not something you sell. you just withdraw your funds directly from the bank. bank issued CD's are not tradable securities like bonds

there ARE brokered CD's which can be bought and sold, but those are separate beasts from bank-issued CDs which are functionally savings accounts with less liquidity/flexibility. usually in the form of a penalty. but the no-penalty CDs are a unique product in that regard, typically at a marginally lower rate than traditional CDs for similar timespan

[SpursforSix]

its not something you sell. you just withdraw your funds directly from the bank. bank issued CD's are not tradable securities like bonds

there ARE brokered CD's which can be bought and sold, but those are separate beasts from bank-issued CDs which are functionally savings accounts with less liquidity/flexibility. usually in the form of a penalty. but the no-penalty CDs are a unique product in that regard, typically at a marginally lower rate than traditional CDs for similar timespan

Ah. I’ve only bought CDs through a broker. What is the incentive for the no penalty CD’s from Ally? Is it just to get people to open accounts?

[spurraider21]

Ah. I’ve only bought CDs through a broker. What is the incentive for the no penalty CD’s from Ally? Is it just to get people to open accounts?
Yeah basically. Any way to convince people to make big deposits. Bank on most people being asleep at the wheel like with gym memberships and not frantically closing and opening new ones every time their offered rate climbs by 0.1%

at this point i do all my basic personal banking at ally. Have used them for basic savings for a while now. But more recently, also checking and basically have used their no penalty CDs as my de facto savings. Not that i really care, but even their basic checking offers more interest than a typical big bank does on their savings. Either 0.1% or 0.25% now depending on how much you have in it. Big banks typically don’t give any interest in checking accounts and most don’t offer more than 0.01% for savings. Nothing i use at ally has any fees either. Annual, maintenance, whatever.

[BD24]

Ally is fantastic honestly. They even have some robo trading profiles you can setup through ally investment that are pretty decent as well. They have self directed trading as well.

[spurraider21]

Ally is fantastic honestly. They even have some robo trading profiles you can setup through ally investment that are pretty decent as well. They have self directed trading as well.
they're super customer friendly. i recently moved all my savings over to a new money market account because it was offering a higher rate. no balance minimums or fees or w/e so no harm in just moving everything over and back when you feel like it. even without brick and mortar locations, the ability to open/manage/close accounts is usually just a few clicks. the only situation i can really think of where theres a drawback to using them is if you ever need a cashier's check/money order and you cant go in same-day and pick it up, have to order in advance and wait for it to arrive

i havent touched their investment products yet, though. trying to be fairly conservative these years while saving up for our eventual move back to LA. cost of living price shock will be real, especially since we'll be coming back with at least 2 kids whenever that is (just learned we are expecting #2)