No Hope For Savers – Long Term Interest Rates Going Down

Earlier in the week the Fed announced a plan to move short-term securities into long-term holdings, such as 50-year bonds. This move would ultimately affect mortgage rates and other consumer and business loans. As investors buy up U.S. treasuries, yields will drop in response, forcing interest rates on mortgages to also drop. Over the past week the 30-year mortgage has dropped from 4.18% to 4.00%, pushing further into record-breaking ground. Just how far will mortgage rates drop? As long as the US economy stays weak and the Fed keeps short-term rates near 0%, mortgage rates could stay close to where they are right now.

How does this affect savers?

Anyone not buying a house, car or taking out long-term loans will be affected negatively by the current moves of the Fed. As long as banks and other financial institutions can get money at near 0% interest, they have no need to get it from investors. When the Fed increases rates, the cost to banks for borrowing money increases, this will in turn give the banks an incentive to pay its customers more to borrow their money.

Whenever you place your money into a bank account, savings account or certificate of deposit, the bank uses that money to lend to its customers of credit cards, mortgages, car loans and any other type of loans. In turn the bank charges an interest rate for these loans and pays its customers its borrowing money from a part of that percentage. This is how the banking system makes its money. When rates are down, the banks have no reason to pay a higher rate to investors. Therefore, as long as interest rates are at or near 0%, investors will lose, while those buying long-term loans will win by the decreased cost of borrowing money.

Will interest rates increase in 2011?

The U.S economy is projected to grow at an annual rate of 2%, not even keeping up with the rate of inflation. The current inflation rate for 2011 is 3.8% (US Inflation). When the Fed announced that it would keep interest rates near zero percent for ‘an extended period’, they said so because there was little prospect that the economy would recover within the next two years. This means that interest rates would stay low for this period of time, giving borrowers more time to make purchases or to borrow money at record low rates.

One of the dangerous causes of low interest rates is inflation. If inflation increases, interest rates would need to be increased to control the increase of inflation. The only hope for savers to see an increase on their savings accounts or CD rates in the near future would be to see an increase in inflation. Then it becomes a game of when, or if the Fed will renege on their original statement that interest rates would stay low until at least mid-2013. If the interest rate the Fed sets is not increased until 2013, then I do not see CD rates or Savings rates increasing until 2013 also.

Where are the best interest rates for savers?

If you are looking for the best interest rates on CDs or savings accounts, then stay away from major banks. Check your local credit union, as these financial institutions tend to have the best CD rates anyone can find. Melrose Credit Union is a great example of a Credit Union offering some of the highest rates on their certificate of deposits. Melrose is also a credit union open to anyone, while most credit unions are only open to specific groups of people.

Best CD Rates Are Found At Local Credit Unions

Before we start talking about Credit Unions we did want to report that MainStreet Bank still has a great rate on their 36 Month CD at 2.00% APY. You have to go through their website and act like you are signing up as a new member to view their CD rates.

Time and time again we have seen credit unions beat out the big banks on the rates they offer for not only savings accounts but also certificates of deposits. Most Credit Unions are out of reach of the average person or they have strict membership requirements, one of the many reasons why they can offer higher rates. Right now Melrose Credit Union has held the top spot for most of the popular CDs, but Connexus Credit Union has higher rates for the 12 month and 60 month CDs.

We stated that many credit unions have strict requirements or do not allow just anyone to join unless if they are employees or are associated with the credit union in some manner. With Connexus Credit Union anyone can join by registering through the Connexus Association and pay a one-time fee of $5. You then have to open a savings account with another $5. To receive the higher rate on CDs with Connexus, you will have to open a checking account, which has to be an ‘active account’. They define an active account as:

having at least 1 Direct Deposit of net pay, including salary, wages, government benefits or pension made to the account each month. Have 10 checks, ACH withdrawals and/or signature debit card transactions clear the account by the last business day of each month, and electing to receive eStatements.

We asked how much checks cost and were told for a box of 150 checks the cost was $14.76. Connexus Credit Union is located in Wausau Wisconsin.

Connexus has a minimum deposit of $10,000 to receive their highest rates. For balances under $10,000 you will lose about 0.50% APY.

  • 12 Month CD rate of 1.75% APY versus Melrose Credit Union at a rate of 1.31% APY
  • 60 Month CD rate of 3.00% APY versus Melrose Credit Union at a rate of 2.83% APY

The national averages for both the 12 Month CD stands at 0.43% and 60 Month CD at 1.53% as stated by the FDIC.

The bank offering the highest 12 month CD is AloStar Bank of Commerce at 1.27% and the bank offering the highest 60 month CD is First Internet Bank of Indiana at 2.40% APY.

It might be worth going through some of the hurdles at your local credit union to get the higher CD rate. Some credit unions, such as those listed here are open to anyone, anywhere within the United States and have few restrictions. You can always find the best CD rates by going through our database of banks on our CD rates page.

How To Save Your Money

People are often faced with the burdening dilemma of not having enough money, or worse, getting into debt. No matter how much money comes their way, for some reason another, it just ends up somewhere in oblivion.

So what is a surefire way to save money, without killing yourself over it? Here’s the answer: percentage.

Every time you receive money, divide this into fixed percentages. The book, “The Richest Man In Babylon”, says that a man who keeps at least 10% of his earnings is surely on the path to wealth. This method is also endorsed by millionaire author, T. Harv Eker, in his book, “Secrets of the Millionaire Mind”.

So here’s what you need to do: think about your income, and immediately subtract 10% of it for your savings. If you can live comfortably with the 90%, then good for you! IF not, then try to see where you can but back on expenses. Be careful not to compromise with yourself by saving only 5%, because you just need to have that new pair of boots, or that gadget on sale. However, if saving 10% just isn’t realistic for you (or you don’t have the discipline for it yet), begin by saving 5%, or even 1%! The important thing is to start, and to never miss a “payment”.

Once you’ve established your 10% saving habit, you can also divide your income some more, such as another 10% for financial education. 10% for investments, and so on. challenge yourself to lessen the percentage of your living expenses. If this isn’t possible, make the effort to increase your income.

Financial freedom is all about the process of learning, saving, and definitely investing. Just know that one of the first steps to wealth is accumulating enough cash that you can use for future opportunities. Saving isn’t difficult, it’s just a matter of making a system and sticking to it.

Sallie Mae Bank Tops The Best Savings Accounts

Sallie Mae Bank also the lender of student loans is at the top for the best savings account at 1.40% APY. This is the same return that was offered to savers since last spring.

All other major banks and institutions have been cutting their rates and offering less than Sallie’s 1.40%. paid a nice 2.00% APY in March, down now to 1.35% APY. Bank of America only offers up to 0.35% on some of their savings accounts, much less than Sallie’s 1.40%.

Even Ally who offers some of the better rates for their 12 month CD, currently paying 1.34%, offers a decent 1.24% savings account, much higher than big banks.

Here are some of the nation’s best available returns on Savings Accounts:

  • 1.30% APY from Capital One Direct Bank. Requires a minimum deposit of $1,000 and has an added bonus of their InterestPlus Online Savings account which pays a 10% bonus on the interest you earn.
  • 1.30% APY from American Express Bank. A stable bank owned by the major credit card company.
  • 1.25% APY from Discover Bank. Requires a minimum of $500 and is also owned by the major credit card company, Discover Card.

Savings Account Rates Higher Than CDs At 1.50%

Some of the highest savings accounts are paying more than some of the best short term CDs at 1.50%. With taking the top spot for the highest savings account rate, this knocks down many short term CD rates. The average 12 Month CD is sitting at 1.50% APY with many banks offering just under the 1.50% mark.

The difference with saving account rates is their ability to go down at any time, they are variable based on the bank. Most CD rates are locked at the specific interest rate for the specified time and cannot go down within that time frame.

With a savings account your money is never locked up. You have no early withdrawal penalties and can take your money out at any time. You can always move your money to a more lucrative investment if one comes around, but for the time being it’s a good time to take advantage of these top savings accounts.

Here is a list of the highest Savings Accounts Nationally:

  • 1.50% APY with a minimum deposit of $1 from Southern Community Bank and Trust operates the website.
  • Sallie Mae Bank is offering 1.40% APY savings account with no minimum deposit. This is an online bank owned by the leader in student loans.
  • NewDominon Bank is also offering 1.40% APY savings account with a minimum deposit of $1,500. NewDominon Bank is located in Charlotte and Mooresville, NC. They have a $10 monthly service fee for any savings account under $1,000.
  • Capital One Bank is offering 1.35% APY with a minimum deposit of $1,000. They have 700 branches in New York, New Jersey, Connecticut, Louisiana and Texas. They have an InterestPlus Online Savings that also pays a 10% bonus on ‘interest earned’ for qualifying accounts.
  • Discover Bank is also offering 1.35% APY with a minimum deposit of $500.

Capture these returns or learn more about savings rates and CD rates from our database of CDs.

High Yield Checking Account At 4.0% APY

Michigan Interest Checking AccountLake Michigan Federal Credit Union is offering a fairly nice high yield checking account. They are located in Michigan but have opened their doors to customers nationwide, so if you live outside of Michigan you can open this high yield checking account. The account is called “Max Checking Account” and provides an interest rate of 4.0% APY on deposits up to $15,000.

Details of the account:

  • Free! No fees or minimum account balance requirements
  • 4% APY on balances up to $15,000.
  • A max of $15/month in surcharge ATM withdrawal fee refunds.
  • Free MasterCard debit card.
  • Unlimited check writing
  • Free online banking
  • Free phone banking
  • Direct Deposit with Free automatic transfers
  • Free online bill pay with Direct Deposit (usual cost of $5.95/month)
  • 24-hour access to your funds

There are four monthly usage requirements with this account:

  • Direct deposit into your LMCU account
  • Minimum of 10 debit card purchases
  • Minimum of 4 logins to home banking
  • Sign up to receive eStatements/eNotices

You can learn more about the high yield checking accounts (sometimes referred to rewards checking accounts), visit our interest checking account page to learn more about these rates.