In June, the Federal Reserve raised interest rates for the second time this year and for the seventh time since it began normalizing rates in December 2015.
Overall, deposit rates have been slow to respond. Even today, you may see little difference in the interest rate of your bank account compared to the time before the first Fed rate hike in 2015. The average savings account yield is now 0.22 percent, which isn’t much higher than the average yield in December 2015 of 0.18 percent.
This average is dominated by brick-and-mortar banks and credit unions. Internet banks have always offered higher deposit rates due to their lower cost structures, but they have also responded much faster to the Fed rate hikes. At several internet banks this week, it’s possible to earn 2 percent yields on short-term deposit accounts. For those who prefer to bank by physically visiting a branch, it’s still possible to earn 2 percent, but it takes more work.
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Short-term CDs. The short-term deposit account with a yield of at least 2 percent that is the easiest to find today is the short-term certificate of deposit, where short-term is defined as one year and less. For 12-month CDs at banks that can be opened online or by mail in any state, there are now 37 that offer yields of at least 2 percent. One internet bank is offering 2.5 percent annual percentage yield, or APY, on a 12-month CD with a $1,000 minimum deposit.
For six-month and nine-month terms, a CD yield of at least 2 percent is rare, but these are becoming more common at internet banks. For CDs that are nationally available, there are now eight six-month and nine-month CDs with yields of at least 2 percent. The highest is 2.25 percent APY on a nine-month CD at an internet bank with a $10,000 minimum deposit.
A short-term CD with a 2 percent-plus yield may even be an option at your local brick-and-mortar bank or credit union. Local banks and credit unions from around the nation have been coming out with short-term CD specials with yields of 2 percent and greater.
Savings and money market accounts. Savings and money market account yields have just started to reach 2 percent at internet banks. These accounts are a more liquid option than short-term CDs. Unlike CDs, you don’t have to wait until maturity to withdraw the funds without a penalty. The only withdrawal restriction with these accounts is a limit of six withdrawals per month. Money market accounts are very similar to savings accounts. Typically, but not always, money market accounts allow check writing while savings accounts do not.
Currently, four internet banks are offering savings or money market accounts with yields of at least 2 percent. Two are promotions with one requiring a $25,000 minimum balance. The two others have a maximum balance that qualifies for the 2 percent of $50,000. For non-promotional accounts without large minimum balance requirements and without small maximum balance limits, the highest yields are in a range from 1.8 percent to 1.9 percent. Eight savings accounts and one money market account have yields that range from 1.8 percent to 1.9 percent.
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High-yield reward checking accounts. The deposit account that offers the most liquidity is the checking account. Typically, an unlimited number of withdrawals are allowed. Money can be accessed by check writing, online bill pay and debit cards.
Due to this ease of access, checking accounts have traditionally offered lower rates than offered by savings and money market accounts. That’s not always the case. Hundreds of community banks and credit unions from around the nation now offer high-yield reward checking accounts. For nationally-available reward checking accounts, 30 have yields that range between 2 percent and 4 percent.
As you might expect, these high-yield reward checking accounts have limitations and requirements.
First, they have limits on the balance that qualifies for the high yield. These maximum balances range from $5,000 to $50,000. Second, they have monthly requirements that must be met to qualify for the high yield. The typical monthly requirements include 10 debit card purchases and direct deposit. They also require electronic statements, and they sometimes require monthly access of online banking.
Most high-yield reward checking accounts are free checking accounts with no monthly maintenance fees regardless of balance or meeting any activity requirements. Even with the limitations and requirements, a free high-yield reward checking account can be a good way to obtain a yield of 2 percent-plus on your primary checking account.
Rise of 2 percent yields. There was a long period between 2010 and 2017 when obtaining 2 percent yields on short-term deposit accounts was almost impossible. High-yield reward checking accounts were the exception, but they weren’t useful for those with large balances or who did not want activity requirements.
At internet banks, we finally saw the return of 2 percent yields on 12-month CDs in December. Rates have continued to rise in 2018, and now 2 percent-plus yields are available on six-, nine- and 12-month CDs. In the last two months, 2 percent yields have started to appear on internet savings and money market accounts.
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It won’t be long before obtaining 2 percent yield on a short-term deposit account will be easy, at least at internet banks. Then we’ll be searching for 3 percent yields.
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3 Ways to Top 2 Percent In Short-Term Accounts originally appeared on usnews.com
