CD vs Savings, comparing the rates

46 Replies

On Ally, their savings accounts are 1.75% right now.  I was looking at their other products... why would anyone even consider a money market at 0.9%-1.0% and CDs that are <1.75%?  Is there something I'm missing about these products?  

Hello and welcome to this site!  Good   All that I can say is that both options suck.  The Banks, or most of them, are saying that this is a great place to put your money here as your best alternate when, In fact there are many better options that make you more from your investments, you just have to shop for them.  Financial Planners and Banks never tell you what could really help you out.

Good luck to you!

Well you gotta realize that the cd ,although safe,is going to tie your money for a set period of time and there’s some penalty for removing it where as a savings account you can pull money whenever and it’s super safe .All These saving bank products suck these days and most people don’t realize that if you put 100$ in a savings account it will take 883 years to double to 200$ at the current rates. Cd is a little better but it’s not as liquid 

@Ryan Moore It can just be not knowing these savings accounts exist. I like Ally because with the movement of rates they automatically bump my rate up for me. Also, one draw back is there are 3 day transfers for Ally savings and I believe money market accounts come with an ATM card if you need cash right away. 

The interest rate on a high-yield savings account can be changed at any time by the bank.

I first learned about these accounts several years ago. The interest rate at the time was 1.80%. I opened one after the interest rate had dropped to 1.50%. The interest rate got as low as 0.55%. The interest rate has been steadily climbing over the past few months and the account where I have money is now at 1.75%.

The money is liquid and the principal is FDIC insured. The Alliant CU savings account, where I also have money on deposit, offers a similar high rate and is NCUA insured. I think of these accounts as "guaranteed principal" where I might not make as much money on the upside as with other investments, but I'm not going to lose any money on the downside either. I keep a portion of my net worth in these high-yield accounts as a diversification strategy.

I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.  

Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’. 

Originally posted by @Mike V. :

I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.  

Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’. 

Keeping "cash" in a floating rate bank loan fund isn't wise for any investor.  The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly.  On top of that, it's levered.  This is far from a cash vehicle.  The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.  


It's your money, so do as your please, but I'm just outlining the risks for the less informed.  

If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov 

Source: am an institutional fixed income portfolio manager managing a significant book

Feel free to reach out with any questions if what I wrote isn't clear.

Originally posted by @Kon Zel :
Originally posted by @Mike Verna:

I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.  

Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’. 

Keeping "cash" in a floating rate bank loan fund isn't wise for any investor.  The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly.  On top of that, it's levered.  This is far from a cash vehicle.  The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.  


It's your money, so do as your please, but I'm just outlining the risks for the less informed.  

If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov 

Source: am an institutional fixed income portfolio manager managing a significant book

Feel free to reach out with any questions if what I wrote isn't clear.

Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently. 

Definitely not for everyone. 

Originally posted by @Mike V. :
Originally posted by @Kon Zel:
Originally posted by @Mike Verna:

I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.  

Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’. 

Keeping "cash" in a floating rate bank loan fund isn't wise for any investor.  The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly.  On top of that, it's levered.  This is far from a cash vehicle.  The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.  


It's your money, so do as your please, but I'm just outlining the risks for the less informed.  

If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov 

Source: am an institutional fixed income portfolio manager managing a significant book

Feel free to reach out with any questions if what I wrote isn't clear.

Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently. 

Definitely not for everyone. 

Disagree considering a 10yr tsy is at ~2.80 right now.  That's literally a risk free return (of course assuming that the US gov't will repay its debt obligations).  4 week bills are yielding ~1.90, 26 weeks are at 2.07.  Take a look here:

https://www.treasury.gov/resource-center/data-char...

Again, every investor has their own risk profile, but don't confuse cash with investments.  FFRHX is the latter.  For those interested, here is the performance over the last few years:

http://performance.morningstar.com/fund/performanc...

Bank loans are a great investment, especially in an uprate environment but they are not cash.  One needs to understand the risks when buying them - where we are in the credit cycle, what the structure of these investments is, why they're rated below investment grade, etc.  

Mike I'm not picking on you, I'm just trying to lay out that this might not be the best fit for everyone.

Hello Paul!  Thank you for your response.  I'm being a little steamy because of the book I'm now reading "Killing Sacred cows" that was mention by one of a book author that I read.  He is talking about how we have been told things for years to make us that one of the best investments is to save money by only showing the surface of complicated what kind of return you get and installing fear and ignorance into us.

We were taught by them and most financial planners how to present numbers without any explanation as to what it takes to get there and to make you think they are good and know what they are talking about.  They usually make more than you by using your money but never tell you how or how much.  Most of their advertising says that they are a good place to go to save your money.

He also explains how putting your money in  401K is a bad way to invest your money and removing some or all of that and getting income tax and a penalty by that should just be looked at as an expense instead of a loss and that even after what was taxed and penalized you can be better off making a decent return on that money which is a better return than the stock market and hoping and the fear that was taught not to touch that and how you can make more elsewhere.

Do you know that if you completely pay that place off for 30 years you pay about 3 times more than what you originally paid for that purchase and the Bank never tells you that and what else they make on your money after you deposit it and that your home and car loan is actually a liability and not assets.

 I cannot say any investments that give you a better return than a Bank, I do not think that it would not be hard.  It may mean a little work but it will usually well worth the extra labor and that it is alot better than just crossing your fingers and hoping like the money in a Bank savings account or a bank issued CD is paid to you and how a Bank will make much more off of your money.  Best wishes!

My mother in law has a savings account. Maybe about high 5 digits. Basically supplements social security. Most people live hand to mouth.

Cd and Savings is a fear response for many people who do not know what to do with money and grow it. Inflation can average 2 to 3% a year. Then the IRS on top of that counts that crappy 1 to 2 % annual return as a gain and taxable! LOL

People see safety in these government and do not want to take any risks to get ahead.  

I do not use savings accounts. It's another thing to track with a paltry return and my time per hour is more valuable. Just like store cards to save money you have to keep track of all this stuff. Someone can figure out how to spend tons of hours squeezing out an extra 10k a year or they can learn skills and knowledge to make another 500k a year.

Some people love squeezing a penny but others I know with extraordinary wealth do not focus on that.   

I remember as a kid when savings account were 10% !

1 to 2% is a massive yawn.

A lot of it is some people spend their whole life saving 100k so they will do anything to accept perceived safety even if 1 to 2%. As someone else mentioned money in the bank is collecting dust and not making people wealthy. To get a higher return is there risk? Sure there is. 

If my mother-in-law would have invested in growth investments such as real estate the 5 figures would now be 6 figures instead of the total going down every month hoping the funds outlive the person.    

I like to put my money in Real estate investments with 20% cash on cash returns. If you like CD or savings account I recommend opening accounts and collecting opening bonus 100 - 400$ all around town.
Originally posted by @Kon Zel :
Originally posted by @Mike Verna:
Originally posted by @Kon Zel:
Originally posted by @Mike Verna:

I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.  

Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’. 

Keeping "cash" in a floating rate bank loan fund isn't wise for any investor.  The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly.  On top of that, it's levered.  This is far from a cash vehicle.  The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.  


It's your money, so do as your please, but I'm just outlining the risks for the less informed.  

If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov 

Source: am an institutional fixed income portfolio manager managing a significant book

Feel free to reach out with any questions if what I wrote isn't clear.

Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently. 

Definitely not for everyone. 

Disagree considering a 10yr tsy is at ~2.80 right now.  That's literally a risk free return (of course assuming that the US gov't will repay its debt obligations).  4 week bills are yielding ~1.90, 26 weeks are at 2.07.  Take a look here:

https://www.treasury.gov/resource-center/data-char...

Again, every investor has their own risk profile, but don't confuse cash with investments.  FFRHX is the latter.  For those interested, here is the performance over the last few years:

http://performance.morningstar.com/fund/performanc...

Bank loans are a great investment, especially in an uprate environment but they are not cash.  One needs to understand the risks when buying them - where we are in the credit cycle, what the structure of these investments is, why they're rated below investment grade, etc.  

Mike I'm not picking on you, I'm just trying to lay out that this might not be the best fit for everyone.

 It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?

Originally posted by @Roxie Kim :

 It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?

Interest rate risk isn't a system risk.   Even rates go to infinity, you're still guaranteed your rate if you hold.  The value of your investment will never be 0.  Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.  

Originally posted by @Kon Zel :
Originally posted by @Roxie Kim:

 It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?

Interest rate risk isn't a system risk.   Even rates go to infinity, you're still guaranteed your rate if you hold.  The value of your investment will never be 0.  Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.  

Yeah, I know that....that's why I said it's only risk free if you keep till maturity. I understand that the principal underlying value will, absent a government collapse, never be impaired. I'm not advocating a bank loan over a treasury because those two cannot be compared. So if you're are absolutely, 100% sure that you will not need to redeem before the 10 years is up, then I would agree, that it's a risk-free investment. However, in the real world, a ten-year crystal ball just does not happen. Given the current direction of interest rates, I can pretty much guarantee that a 10-year treasury purchased today will be sold at a discount if you tried to sell it in 3-4 years. 

I also looked into Ally and Citi Bank which has some of the highest in dividends right now. I concluded that locking 10k of my liquidity for the length of a year or more (as a base min. limit) was not in my best interest at this time.
Now who I did find was Discover Bank who as of last month is offering a 1.59 monthly and a 1.60 annually with no min. required (and yes I asked twice when on the phone with them about 1.59 & 1.60 annual differences). You will have access to your money and it’s no minimum money required limit you must keep after you go through the process to open the account.

Only draw backs I can see is that the rate(although one of the top 5 highest I found at the time), it’s not a fixed rate, it’s a flexible which in 2017 June it was .95% (so it had been on the climb). The last I saw was that for a bank to bank transfer it will take approximately two business days (if that’s an issue for someone), and these two where all I saw as an issue at the time.

Hope this helps...

Originally posted by @Roxie Kim :
Originally posted by @Kon Zel:
Originally posted by @Roxie Kim:

 It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?

Interest rate risk isn't a system risk.   Even rates go to infinity, you're still guaranteed your rate if you hold.  The value of your investment will never be 0.  Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.  

Yeah, I know that....that's why I said it's only risk free if you keep till maturity. I understand that the principal underlying value will, absent a government collapse, never be impaired. I'm not advocating a bank loan over a treasury because those two cannot be compared. So if you're are absolutely, 100% sure that you will not need to redeem before the 10 years is up, then I would agree, that it's a risk-free investment. However, in the real world, a ten-year crystal ball just does not happen. Given the current direction of interest rates, I can pretty much guarantee that a 10-year treasury purchased today will be sold at a discount if you tried to sell it in 3-4 years. 

Now you're bringing in concepts such as duration, which are irrelevant to the point I was making as well as the original discussion.  

We've veered off course from the original topic which was to compare different cash products.  

The only point I was making was that there are better alternatives than CD and savings accounts that offer the same liquidity.  That's all.