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Posts Tagged ‘interest rates’

Unique High Interest Savings Accounts Few Know About

Interest rates continue at historically low levels. These savings accounts offer high returns with low or no risk. #interest #bank #rates #savings #moneymarket #savingsrate #interestrate #earningsInterest rates have barely lifted from ground level and are already headed lower. In the U.S. short-term interest rates are at least positive. My EU and Japanese readers are not so lucky, facing negative rates.

Low interest rates are bad enough, but watching your bank balance decline is a downright nightmare for savers. If you are close to or in retirement this can cause great financial harm.

Because rates are likely to stay at these low level for the foreseeable future and there are many safe alternatives paying more, I will publish a special report each month highlighting one of these short-term, money market-like investments. Every effort will be made to address opportunities available to as many readers across the planet as possible.

Because these special reports will be in addition to regular publications you will want to subscribe using the button at the beginning of this post so you get the reports as soon as they are published. I will also discuss short-term interest investment options on The Wealthy Accountant Facebook page as well. 

Today I will share over a dozen options to earn more interest on your short-term savings. I will link to posts where I discussed some of these in detail in the past and will indicate if I am an affiliate of the program. The remaining options will get a short bio. If necessary, I will publish a complete report on the investment later.

Many investments are in U.S. dollars. Some investments allow investors from outside the U.S., but require the investment be made in dollars. This adds currency risk to mix and is something you need to consider before investing.

Finally, before we begin, many short-term investments are not guaranteed. Money market accounts are almost never a guaranteed investment. However, they are considered extremely safe. As always, research the choices I list before committing funds. No one investment is right for everyone. My goal is to provide as many choices as possible so the most readers benefit.

 

Alternative Short-term Investment Options

 

First Class Demand Notes

There is a unique investment too few people consider offered by Mercedes-Benz Financial Services called first class demand notes. For qualified investors this can be a powerful financial management tool. There are no minimums and you can withdraw funds at any time.

However, you must be an accredited investor which means you need either a $1 million net worth excluding your primary residence or a $200,000 income the past two years and expect to earn over $200,000 again this year.

Pros: Easy access to funds without waiting and a relatively high interest rate, currently 3%. I could not find anything limiting the investment to Americans only and since Mercedes-Benz is a German company it is possibly available in the eurozone as well. Highly liquid.

Cons: The program might be available outside the U.S with different terms. Only qualified investors can invest and all investors are verified to assure they are qualified before the account is opened.

 

P2P

Many peer-to-peer options exist. Once upon a time I was a big fan of these investment options. My personal experience and several issues in the news involving some P2P companies has raised concerns.

Here is a list of the highest interest rate savings accounts few are aware of. Earn high interest on your short-term savings. Some have high yields and are FDIC insured. #bank #savings #interest #rates #savingsaccount #bankaccount #interestratesI still mention P2P because it is a viable option for some willing to take the added risk. I have personally invested in Peer Street, Prosper and Lending Club. My Prosper and Lending Club accounts are nearly wound down to zero and I made a reasonable return. I don’t think future investors will fare as well as it appears returns have fallen sharply. My Peer Street investment is still in limbo. Fingers crossed I turn a respectable profit.

I am in the affiliate programs of some of these companies, but no longer use the links. If I missed an affiliate link to a P2P investment, please do not use the link as I can not in good conscious recommend any of these investments. I list them here as a warning only and for the most risk tolerant readers.

Pros: Very high interest rates. Many promise 10% returns and higher.

Cons: Liquidity. Once invested, getting out quickly is difficult until the loan your money is placed in makes payment or pays off the loan. There are too many P2P companies cropping up for me to vet them all. Since the P2P company profits by making loans and servicing them while you take the risk of default, my concern (and a well-founded concern at that) is the quality of underwriting.  

 

YieldStreet

This is the riskiest investment on the list and is NOT guaranteed by any means. YieldStreet is unique enough with potential promise for certain investors I felt it needed a mention. 

This is similar to P2P investments above with the exception these are very illiquid with 5-7 year minimum time horizons. But the returns are juicy in the low double digits.

YieldStreet invests in some unique projects. Commercial real estate is about the most normal thing in their portfolio. Other investments include art, lawsuits, large ships and more. You get to choose which projects your money is invested in. Serious due diligence is required before investing with YieldStreet.

Pros: Very high returns. 

Cons: Extremely illiquid. Very high risk. Only for investors with a high risk tolerance. 

 

Vanguard Prime Money Market Fund

Vanguard has always run a solid investment house. Money market accounts might be boring, but they offer liquidity and are very low risk (about as low risk as you can get without saying guaranteed). I used Discover Savings and Capital One 360 for many years before moving to Vanguard Prime MM Fund. I switched when Prime paid a higher rate.

Pros: Low risk of a money market fund with a relatively high interest rate currently. Very liquid.

Cons: The interest rate in Prime follows market rates and has been falling recently due to lower rates in the broader market. If rates continue falling other alternatives may perform better. It is a good idea to bookmark this page to reference back as interest rates change and different investments provide superior returns.

 

Treasury Direct

I used Treasury Direct to hold the working capital of my tax practice for many years. When Treasury securities dropped to near zero other investments were a better choice. 

While Treasury Direct might not be the best option now, it is worth noting for future reference. 

Safe, high yield savings accounts are available. Here is a list of secret accounts you want to consider. #secret #investments #bankrate #bank #interest #interestrate #savings #savingsaccounts #savingsratesTreasury Direct is the portal for investing in U.S. government securities. You can buy bills, notes and bonds along with savings bonds and TIPS. Securities are held in the account.

T-bills have maturities as short as a few days up to a year. You can set your account on automatic, rolling over maturing securities until you need the funds. Cash is usually direct deposited back into your bank account. (Treasury Direct has a tool to hold funds awaiting investment in certain instances that I don’t like and therefore don’t recommend. Money awaiting investment is best in your regular bank account.)

Pros: Guaranteed by the U.S. government. Reasonably liquid. You can sell securities prior to maturity, but it is somewhat difficult to do. By laddering your short-term investments you can maintain reasonable liquidity.

Cons: Mildly illiquid in some cases. Rates tend to be fairly low except when the Fed is trying to slow the economy. Historically Treasury Direct was the best investment in town until ultra-low interest rates became the norm. You will want to review Treasury Direct for future use should the interest rate environment change.

 

Wealthfront

Wealthfront is one of many similar investment options for short-term money cropping up and worth considering. Their rate as I write (July 29, 2019) is 2.57% and is FDIC insured up to $1 million. 

The rate is relatively high for a short-term vehicle that is guaranteed (FDIC insured). There are no minimums (okay, they require at least $1) and you can get your money out at any time. Best of all, there are no income or net worth requirements. 

Pros: Liquid, low minimum, reasonable good rate. Easy to open an account.

Cons: Rate lower than Mercedes program above, but still reasonable in today’s interest rate environment. Rate likely to decline if the Fed lowers rates.

 

Betterment Everyday

Betterment is an investment company with some interesting new products to consider. The minimum is a mere $10 and is FDIC insured. There are two levels. The first level is a simple savings account paying 2.43% as of this writing. However, if you sign up for their wait list for their fee-free checking account your savings earns 2.69%.

Pros: Liquid, FDIC insured, excellent rate if on the Betterment Checking wait list.

Cons: Not much to dislike. The rate is likely to change over time so keep an eye on it. If another investment vehicle become superior you can easily move.

 

Ally

Ally is a favorite among readers of this blog. The rate is about what the Vanguard Prime MM fund pays (2.1% currently for Ally’s online savings account). Brand recognition provides comfort. Ally has more features than many other short-term investments listed here, allowing you to structure your account as it serves you best. 

Pros: Liquid, recognizable brand, numerous features to manage your account.

Cons: Lower rate than other options listed in this post. Only available to U.S. legal permanent residents or citizens.

 

Worthy Financial

Worthy is a unique investment I fleshed out a few months back. The main selling point is the 5% interest rate paid on Worthy bonds. 

Before you rush to invest, a few disclosures first. The link in the resources section after this post for Worthy and the link in my previous post on Worthy is an affiliate link. You and I both can get an extra $10 for using the link, just follow the rules.

Also, Worthy bonds are NOT FDIC insured or guaranteed and is not similar to money market accounts. They invest in business inventory. This could work well, but there is no guarantee of success. Worthy is a new company so you need to consider this before investing. Regardless, I would only put a portion of your short-term funds into Worthy due to the heightened risk.

I currently have $2,000 of my own money invested, plus all interest earned to date and all $10 affiliate payments received to date. That does not mean it is safe. I like to test things. A couple thousand is a nice way to test a product of this nature. Review the Worthy site and your temperament before investing.

Pros: It pays 5% with a $10 minimum. Liquid.

Cons: Higher risk compared to other savings vehicles on this page paying 2 1/2 to 3%. 

 

Cit Bank

We finish with the Cit Bank Savings Builder. Cit Bank pays up to 2.3%. Notice I said “up to”. You only need $100 to open an account and there is a introductory rate, however, you need a higher balance to receive the top rate. 

There are a lot of moving parts to this one. If you add $100 or more each month you get a better rate if you have a low account balance. Read the details to see if it fits your needs.

Pros: A basic savings account with reasonable interest rate.

Cons: Too many moving parts considering the rate offered as of this writing.

 

Final Notes

The facts and circumstances are sure to change over time so you must be willing to move your funds periodically to earn the best rate on your short-term  money. As interest rates decline again it will be more important than ever to stay vigilant. 

The list above is by no means exhaustive. I intentionally left many products I researched off the list. Some were outlandishly risky (as if YieldStreet isn’t risky enough). Some I left off to keep this post brief. 

I will address some of these investments in greater detail in the future and add to the list. In time I will publish a post for each geographic region of the world (eurozone, Japan, et cetera). The goal is to offer all readers at least one option that pays well for their location.

Short-term money was never meant to yield large returns. But it should at least grow some and safely.

Be sure to share investment vehicles you like but not listed here in the comments. We all benefit when we work as a team.

Thank you.

 

Bonus

I no more than hit the publish button when an article from CNBC on Green Dot crossed my desk. It is important enough to add this bonus after-the-fact.

It seems Green Dot is currently offering 3% on their savings account to encourage new customers, plus 3% cash back on their debit card! That is so massive it makes this accountant’s eyes water. There are limits, of course, so be sure to do your due diligence.

 

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

How Fast Does Inflation Rise?

U.S. Yearly Inflation Since 1900Media continually warns of impending inflation due to all the money printing by central banks around the world. The concern is real. If inflation spikes bonds will suffer massive loses and stocks will also suffer a painful decline. It is past time we look at the facts about inflation, how fast it rises, and what causes prices to spike.

Planning for retirement and when reviewing investments, inflation is a consideration. A review of historical inflation data will help in the decision-making process. By reviewing the historical data also clearly shows why inflation accelerates, including solutions to protect yourself. We will focus on inflation data in the U.S. I have reviewed price data for other countries and further back than the U.S. data. The conclusions are the same.

Recent Inflation/Deflation Dilemma

The current deflation started in the stagflation days of the 1970s. Back then unemployment and inflation were both high. Economists were beside themselves on what to do. How can you have high inflation (caused by excess demand) and high unemployment (caused by low demand)? Except they had it all wrong. Demand was high and businesses were not incentivized to increase production, thereby creating high unemployment and high inflation at the same time.

Paul Volcker at the Federal Reserve and President Reagan applied a two-prong approach. Volcker raised interest rates to kill inflation and Reagan pushed supply-side economics through Congress, providing tax incentives for businesses to ramp up production. It took time to steady the economy, but within two years inflation was down and the economy was humming.

Supply-side economics has been in vogue since the success of the early 1980s. Unfortunately, the medicine required by the economy back then is different from today. Supply-side policies puts downward pressure on prices as it encourages more production. The economy today needs the incentive of mild inflation. Worldwide production potential will keep a lid on prices for the foreseeable future. As much as we all like tax cuts, they will not salve the woes of low inflation or deflation. Supply-side policies have gone as far as they can and may do more harm than good if pushed further.

Where Did All the Money Go?

If central banks around the world have printed so much money, where has it gone? Trillions of dollars, euros, yen, et cetera, should have caused massive price increases. The reason inflation has not accelerated is because most of the money printed sits in bank vaults of money center banks and at central banks around the world. The additional money created was used to improve balance sheets of banks. Money not in the system cannot cause inflation. You can see this in the velocity of money numbers. Historically each dollar changed hands about 16 times per year. That number is now around 4, lower than during the Great Depression. If velocity increases to historical norms inflation is sure to follow since the Federal Reserve increased their balance sheet from $800 billion to $4.5 trillion.

InflationChartSpeed of Price Changes

Prices have fluctuated wildly in the past, oscillating between bouts of inflation followed by gut-wrenching deflation. The illusion of modest price increases over long periods of time is recent. The bout of inflation in the 1970s was not followed by deflation until now, 35 years later. Inflation has remained steady under 4% for most of the last 35 years.

Price changes tend to be orderly under normal circumstances. It takes a shock to the system to send prices rocketing higher. The backside of an inflationary spiral is a deflationary period allowing prices to find an equilibrium. The recent deflation in the U.S. is mild compared to price declines of a century ago.

Official inflation records began in 1913 in the United States. The numbers I use here are the change in prices from the same month the prior year. I’ll start at the beginning. The U.S. decided to start tracking prices due to inflation caused by World War I. In September of 1915 there was mild deflation at -1.0%. By October 1916 inflation reached double digits at 10.8%. In April of 1917 the U.S. entered WWI with inflation hitting 20.4% in June of that year. Then the war ended and the expected deflation arrived. It took a while for inflation pressures to subside. Inflation for 1920 was still a whopping 15.6% as the returning troops increased demand for consumer goods. The next year prices declined 10.5% followed by a 6.1% reduction in prices of goods and services in 1922.

The remainder of the 1920s inflation picture in the U.S. looks a lot like the last decade of price changes today. Inflation in the U.S. from 1923 to 1929 was modest; 1925 had the largest price change with inflation at 2.3%. 1925 was the only year with no month of data showing deflation during the 1920s.

Rising prices are new to people who don't remember the recent past or 1970s. Prices can climb rapidly once pushed by a catalyst. Once prices start climbing, it's hard to slow them down. #prices #inflation #yieldcurve #interest #inerestrates #wageinflationThe shock of the Great Depression kept prices falling. It took until WWII for inflation to make any kind of showing. WWII had inflation, but the real inflation came after the war, similar to WWI, when the troops returned home and ramped up demand. 1947 saw 14.4% inflation.

The 1950s and 60s were a time of modest price changes. The difference was the lack of any real deflation after WWII. Cumulative price increases became large as prices never adjusted back down due to the Federal Reserve providing additional liquidity to the system. This was done out of fear the Great Depression would resume after WWII spending ended. The recession of the early 1950s only pushed prices lower from September 1954 to August 1955. Vietnam War spending caused inflation worries toward the end of the 1960s.

The money supply growth, government borrowing, and Vietnam War spending only caused 5-6% inflation in the early 1970s. It took a shock to the system to ignite the inflation most readers are familiar with. The first oil embargo pushed consumer prices up 11.0% in 1974. Inflation pressures soon eased to 4.9% in November 1976. The second oil embargo reinforced the inflation pressures supported by past government money printing, borrowing, and spending. Double digit inflation for calendar years 1979-1981, were the worst since WWI at 11.3%, 13.5%, and 10.3% respectively.

That is where we came into this story. Fed Chairman Volcker and President Reagan broke inflation and stagnant economic growth with their one-two punch and for 35 years we have seen declining inflation and lower interest rates. Never have prices been so stable since records began in the U.S.

We fear deflation—and rightfully so—even having never experienced serious deflation in our lifetimes (unless you are a very old reader). Inflation pressures have not ignited for a long time. The charts on this page clearly show we are lucky to be living in such stable economic times. Those times could be ending soon and here is why.

The Rise of Inflation

Prices bounce around modestly as sellers try to get more for their goods and services and buyers try to get the best value for their money. Inflation arises when buyers become scared good and services will not be freely available in the future or the price will likely be higher later. This causes an inflationary spiral. It takes more than a nudge to get inflation feeding on itself. War is the biggest catalyst of previous inflation. Even the 1970s inflation sparked by the OPEC oil embargos was fueled by a decade of massive government military spending.

Your investment portfolio counts on prices remaining relatively stable. Slight inflation, say the Federal Reserve’s 2% target, seems to be a Goldilocks zone for maximizing economic growth incentives for businesses and consumers. Slight deflation is more painful than slight inflation as even modest price declines quickly feed into a ‘wait until tomorrow’ attitude for buying.

The real question centers on how to determine when inflation will rear its ugly head again and the steps necessary to protect your net worth from the consequences. Past bouts of inflation provide valuable lessons. Deflation of -1.0% in September 1915 turned into double digit inflation in thirteen months. WWII had similar results. The 1960s saw inflation pressures building slowly without a spike in prices; the inflation was annoying, but not destabilizing. Annual inflation in 1972 was 3.2%, by 1974 it reached 12.3%.

The lesson to learn is that inflation, when it happens, happens fast and then burns itself out after a few years as consumers lack the money to keep pushing prices higher. This time could be different as the amount of money created is larger than any time in modern history. Out of control money printing reminds us of Germany between the wars or Zimbabwe. I am unable to find any instance where a world power, along with most of the rest of the world, engaged in such massive money creation.

One thing is certain, inflation will come again. Will Durant, the great American philosopher, said history is inflationary. My research affirms his statement. Inflation has a tendency to recur. We are overdue. All the pieces are in place for a massive inflation spike. All we need now is a spark.

MoneyHiding Places

When you see the spark ignite the first one out the door wins; the rest get trampled. Bonds will get killed in an environment of rising prices. Stocks suffer, too. Until Chicken Little starts screaming about the sky, index funds are about the only game in town. Inflation, when it returns, will require a powerful response from central banks. Moving money from equities to short-term bonds of safe sovereign debt when inflation returns is the only alternative until price begin to ease and equities are the place to be again. Or you can ride out the storm in equities. Companies will bust tail to protect their interests. The stock price will not reflect all the value created by companies, but the dividend yield should expand, providing ample cover until the dust settles.

Perhaps the only choice is an index fund and wait. Nobody can predict the next inflation outbreak until it is well on its way and then it is too late. Since businesses will protect their interests, and hence investor’s interests, it is best to keep your money with the largest and most successful enterprises on the planet.

Source: www.usinflationcalculator.com/historical-inflation-rates/

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant for a bonus. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!