Ken Tumin
@KenTumin
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Founder of & former Senior Industry Analyst at @lendingtree . My 2 cents on banking, saving & investing. If not online, I'm walking my pup.
Orlando, FL
Joined January 2019
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With Fed rate cuts approaching, add-on CDs can be especially useful:
Add-on CDs can be like an insurance policy that protects against future low rates.
Here’s what to look for and how to use them:
A thread 🧵
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@BrendanPedersen
SVB likely had a massive amount of uninsured deposits.
FDIC didn't disclose the number, but according to SVB's Q4 call report, only 5.69% of its $161 billion domestic deposits were insured.
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19 years ago, I started a banking blog that evolved into . In 2017, DA was acquired by LendingTree. Although I have enjoyed my time with them, today was my last day with LendingTree. Keep following me here for my banking & saving insights.
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TreasuryDirect just announced new savings bond rates this morning. The new standard is now the last biz day of Oct/Apr rather than the 1st biz day of Nov/May
I Bond Rates:
Composite = 5.27%
Fixed = 1.30% (up from 0.90%)
Inflation = 3.94%
It's the highest fixed rate since 2007
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“If you can’t imagine a 20% loss in the stock market, you shouldn’t be investing in stocks.”
-John Bogle
S&P 500 correction update: -8.3% from its high on January 4. This is the largest pullback since September 2020. $SPX
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@byHeatherLong
I have a feeling we will hear more of this at future Fed press conferences:
"We’re not even thinking about, thinking about, thinking about raising rates."
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Savers Alert!
Instead of increasing rates on savings accounts, some online banks are creating new savings accounts with higher rates. Existing customers with the old savings accounts earn the lower rates unless they open the new accounts.
Recent examples to follow:
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It appears the Treasury released the new May rates for I Bonds early!!!
They have always waited until the start of May/Nov.
New May I Bond Rates:
Fixed Rate = 0.9% (highest since 2007)
Inflation Rate = 3.38% (already known)
Composite Rate = 4.30%
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@MorningBrew
It's important to note that the savings account is from Marcus by Goldman Sachs. The online savings account directly from Marcus currently only pays 3.90% APY. It'll be interesting to see how long the Apple Card savings account will pay a 25-bp premium.
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@cadeinvests
$SCHD is a great dividend ETF. In addition to its solid dividend yield, it has a low expense ratio and a long history of above-average total return.
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Will banks hike deposit rates to avoid a bank run?
First example?
Rare weekend rate hike
@Ally
Bank:
11mo No Penalty CD: 4.00% → 4.75% APY
It's the highest no-penalty CD rate.
It's more liquid than a standard CD. After 6 days, a full penalty-free withdrawal is allowed.
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Here's a CD rate milestone. It's the first 7% CD that I've seen since 2007.
It's a CD Special at the CA-based Priority One Credit Union (
@PriorityOneCU
)
7.00% APY, 7-12 months, $50k min
#creditunions
often have CD Specials with rates higher than any online bank.
@CUEvangelist
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Small & mid-size banks are fighting to retain deposits
Their customers are moving deposits to the too-big-to-fail banks, money market funds & Treasurys
Evidence can be seen in the fast rising brokered CD rates
- Thread -
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@WallStreetSilv
SVB had $209 billion in assets, making it the 2nd largest U.S. bank ever to fail.
WaMu was the largest. When it failed in 2008, it had $307 billion in assets.
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My favorite Peter Lynch quote that's especially relevant for today:
"38. Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves"
Peter Lynch is a legendary fund manager, who compounded money at 29.30% at Fidelity Magellan Fund between 1977 and 1990.
Today is his 79th Birthday
I have compiled 79 Peter Lynch investing quotes in celebration for his birthday
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My favorite investment lesson from Warren Buffett:
"24 The stock market is designed to transfer money from the active to the patient"
Warren Buffett turns 94 today!
The super-investor from Omaha has achieved quite the investment record at Buffett Partnership and Berkshire Hathaway. He needs no introduction.
I compiled a list with 94 investing lessons I learned from him:
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FDIC rule change takes effect today (Not an April Fools’ joke)
Only impacts those who have over $250k at one bank.
It had been possible to insure an unlimited amount at one bank via a trust account that had multiple beneficiaries (such as payable on death accounts).
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New York Community Bancorp is the parent of Flagstar Bank NA, which runs the online bank, My Banking Direct. With a savings account rate of 5.35% APY, a few account holders may have large balances with uninsured deposits. It would be wise to make sure all deposits are insured.
New York Community Bancorp Cut To 'Junk' By Moody's: 33% Of Deposits Uninsured
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@GrahamStephan
$VT/$VTWAX for extensive diversification of both US and international stocks with a relatively low expense fee.
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Great example of the importance of time for compound growth by
@DividendGrowth
John contributes $2k/year between the age of 18 and 27, then stops
Erica contributes $2K/year between the age of 28 and 65
Both compound at 10%/year
At age 65, who ends with more money?
Erica has $728,086.87
John has $1,192,257.81
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@biancoresearch
These CDs are a good deal for those who keep under the FDIC limits.
Before WaMu failed, it was offering market-leading 5% 1-yr CDs. All WaMu CDs were honored by Chase to maturity. No WaMu depositor lost any money.
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With no Fed rate cuts expected before mid 2024, banks are starting to come out with 5%+ online savings accounts with rate guarantees. The 5%+ rate is guaranteed not to fall until well into 2024.
Ivy Bank and EverBank are two online banks offering these savings accounts.
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@DividendGrowth
This is a good example of the impact of time on compounding. I estimated a rate of 17.3% over 87 years:
$1,000 at year 0
$102,000 after 29 years
$10.5 million after 58 years
$1 billion after 87 years
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via
@YahooFinance
“Capital One Financial is being sued by savers who say they were tricked into thinking that they were earning the highest rate available from the company's online banking arm”
Many other online banks have used this same tactic.
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T-bill yields continue to be above the yields of most online CDs. For those with state income tax, T-bill yields are much higher on an after-tax basis. In most state, CDs have to pay at least 6% to get the same after-tax earnings of T-bills.
The 3-Month Treasury Bill Yield has moved up to 5.61%, its highest level since January 2001. The market is now pricing in a 60% probability of another Fed rate hike (to 5.50-5.75%) at the November FOMC meeting.
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A great
@propublica
piece by
@CarsonKessler
on the neobank
@Chime
and the problem of mistakenly closing customer accounts and not returning their money due to fraud concerns.
"Since Chime is not a bank, that leaves it in a regulatory no man’s land"
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@awealthofcs
I think the S&P 500 would be a safer bet
@awealthofcs
described why one would be better off with an index fund than with a handful of stocks:
"all of the wealth creation in the stock market can be attributed to the top 4% of winners in the stock market"
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The well-established online banks are also benefiting from customer inertia. Their online savings account rates are about 100 bps under what you can get from MMFs, T-bills and the top OSAs.
The national average rate on US savings accounts is just 0.47%. If you're still earning a low rate on your cash, very easy to move into money market/high yield savings/T-Bill ETFs with yields above 5%. But inertia is a powerful force and many will stay put, benefitting banks.
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The oldest US-listed ETF, $SPY, turns 30 on Sunday
Fascinating history of its creation is told by
@EricBalchunas
in this 2016
@Business
piece (via
@NateGeraci
)
The impact of $SPY and ETFs:
"You can almost say they’ve democratized investing."
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Due to the easing of inflation, I Bonds will no longer be a slam dunk short-term investment. Current top 1-year CDs offer higher yields.
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@federalreserve
I have a feeling that the FOMC's policy action will be too little too late....
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Highest rate on a CD that I've seen since 2007
7.23% APY 11-mo CD with no max deposit
It's from a small ID-based credit union (
@LCCUandU
). FOM includes part of ID & all of WA.
#creditunions
often have CD Specials with rates higher than any online bank.
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Consumer customers of fintechs like
@JunoFinanceHQ
,
@CopperBanking
and
@winwithyotta
have been losing access to their funds and having their accounts closed.
It's another example of why banking directly with a bank is safer than banking indirectly with a bank through a fintech.
Known fintechs w/ disruptions (& end user impacts) from Synapse/Evolve/etc situation incl:
@winwithyotta
: ceased paying "rewards," debit/credit outage
@JunoFinanceHQ
: card, ACH & wire outage
@CopperBanking
: closed kids' accounts with no notice
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Odds of a March Fed rate cut have fallen to around 38%, down from 47% yesterday (per Fed Funds futures via CME FedWatch Tool.)
10-year selling off to 4.1% after strong JOLTS and consumer confidence
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@charliebilello
“If you can’t imagine a 20% loss in the stock market, you shouldn’t be investing in stocks.”
-John Bogle
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Major online bank almost reached 4% today.
@synchrony
High Yield Savings Account:
3.75% → 3.99% APY
Odd that they decided to stay 1 bp below 4%. It's not a loan that you're trying to make the rate appear lower than it is.
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@KobeissiLetter
Money market funds should keep attracting money from the banks. Vanguard Federal Money Market Fund ($VMFXX) now has a compound yield of 5.14%. Even online banks will lose money to MMFs.
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This is my favorite money sketch from Saturday Night Live. Its 47th season kicks off tonight.
“Don’t Buy Stuff You Cannot Afford.”
#SNL
#savemoney
#debtfree
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@awealthofcs
Even Vanguard Total Stock Market ETF ($VTI) has returned 17% per year from 2009-2021.
All stock investors should remember John Bogle's words:
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”
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2021 performance of the 3 Vanguard broad market index ETFs:
$VOO (S&P 500) = 28.7%
$VTI (Total Stock Market) = 25.7%
$VT (Total World Stock) = 18.2%
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Online savings/money market rate leader:
First Internet Bank Money Market Savings: 5.20% APY
BUT this requires a $1 million balance! Only 3.56% APY for balances under $1M
Better off in $VMFXX. This Vanguard MMF now has a compound yield of 4.90%.
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Rate milestone! $VMFXX reaches 5%
Vanguard Federal Money Market Fund ($VMFXX) 7 day SEC Yield reaches 5.00% (compound yield = 5.12%)
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@InvestMindsetPI
Colonel Sanders started franchising KFC at 62, but he spent years refining his pressure fryer and secret recipe at his own restaurants before this. Not only did he show it's never to late to start, but also never give up. A great podcast on his history @
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Silicon Valley Bank was the 2nd largest bank failure. Only WaMu was bigger. But WaMu depositors were more fortunate. No WaMu depositors lost any deposits. FDIC arranged for Chase to assume all deposits, even those above FDIC limits.
Silicon Valley Bank was the 2nd largest bank failure in US history. Only Washington Mutual was bigger...
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@MacroAlf
Another reminder to avoid market timing
"The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently."
-John Bogle
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Major online savings account rates are finally rising after being stuck at 3.30% since mid Dec.
@Ally
&
@CapitalOne
went up to 3.40% last week. Today
@Marucs
went up:
Marcus High-Yield Savings account:
3.30% → 3.50% APY
153 bps below the rate leader (5.03% APY at Primis)
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Benefits of investing for the long-term
Great chart via
@DividendGrowth
that shows the historical performance of the S&P 500 Index throughout the U.S. bull and bear markets since 1942. You can see how the bull markets dominate the bear markets over time.
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There's a new online savings account rate leader and first to reach 5%.
@PrimisBank
Savings:
4.05% → 5.03% APY
$1 to open and no min balance or service fees. They also have Primis Premium Checking with 5.03% APY.
Primis is a VA-based bank with these new online accounts.
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45 years ago on Aug 31, 1976, John Bogle launched the first index fund, First Index Investment Trust (now Vanguard 500 Index Fund)
Not only was it the start of something that would revolutionize investing, it’s a great lesson to follow your vision regardless of what others think
John Bogle (founder of Vanguard) was laughed at and criticized when he launched the first index mutual fund in 1976
Now practically everyones retirement plan is centered around low-cost index funds
Don't allow others who can't see your vision, stop you from chasing it
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Silicon Valley Bank is shut down by regulators
It had $209 billion in assets, making it the 2nd largest U.S. bank ever to fail (WaMu was the largest. When it failed in 2008, it had $307 billion in assets.)
SVB was the first bank failure since Oct 2020.
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Money market funds have generally kept up with the Fed's rate hikes better than online savings accounts
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The rise of Treasury yields should put pressure on the online banks to reverse their Q1 CD rate cuts
2s back to 5%. to be fair, this line of thinking was telegraphed
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Sheila Bair on today's banking concerns:
"I don't, for the life of me, understand why the Biden administration has not asked Congress to reinstate the FDIC's authority to provide temporary, emergency, expanded deposit guarantees, at least for business transaction accounts."
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6mo T-Bill now pays 5.20%
#CDs
Versus T-Bills: For High-Yield
#Savings
, Go With Treasuries
@business
@AlexisLeondis
gets details and data from
@DepositAccounts
banking expert
@KenTumin
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7.19% APY 7-month CD Special at a Michigan credit union:
As is common for these Specials, there’s a low max deposit ($7k for this). After the next Fed rate hike, we will likely see more 6% and 7% CD Specials (with higher max deposits). Best one now: 5.75% APY 9mo w/$250k max.
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Great example of long-term investing by
@DividendGrowth
"what really helped results was the fact that the trust let winners run for as long as possible. As a dividend investor, I have learned that I should not sell, even if the stock I own is up over 1,000%."
My favorite long-term investing story is that of the Corporate Leaders Trust
This fund selected 30 leading blue chip companies in 1935 all of which paid a dividend
The mandate was to basically never sell
This is a good example of coffee can investing
That's the list from 1935
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2023 Federal Reserve Stress Test Results
Out of the 23 banks stress tested, the 3 banks with the largest projected total loan loss rates are:
Capital One: 14.7%
Barclays US: 10.0%
Goldman Sachs: 9.0%
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@NickTimiraos
Also noteworthy, large time deposits dropped $20.2 billion from $1,840.9 to $1,820.7 billion in the week ending March 15. It's the first week in quite a while that had a drop.
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I guess officials at Synchrony Bank realized that their savings account isn't a gallon of gas. This afternoon, they upped the rate of the savings account from 3.99% to 4.00% APY.
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TreasuryDirect just released the new I Bond rates. The I Bond inflation rate is 2.96%, and the I Bond fixed rate remains at 1.30%. That results in an I Bond composite rate of 4.28%.
Note, the TD started this early release schedule last year.
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@charliebilello
2022 is starting to look like 1974. It doesn't bode well for the stock market.
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In Jan & Feb, online banks lowered their CD rates. Now they’re cutting their online savings account rates.
2 major online banks just lowered their savings account rates:
Ally Savings: 4.35% → 4.25% APY
Discover Savings: 4.30% → 4.25% APY
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Want 5% yields? After Fed hike, it may be time to ditch high-yield savings accounts for money-market funds |
@AndrewKeshner
for
@MarketWatch
Big online banks are lagging. My examples:
Discover @ 4.30% APY
Marcus @ 4.15% APY
vs
$VMFXX @ 5.21% cmp yield
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@indexnforgetit
Here’s that Yahoo Finance piece covering that 6.5% CD:
There are several credit unions offering short-term CD specials with ~6% APYs. Some have low max deposit limitations (the one with 6.5% has a $5k max). Online banks have top CD APYs of ~5.75%.
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Online savings account rates continue to rise.
Latest to reach 1.50% APY:
@SoFi
Checking and Savings APY:
1.25% → 1.50% (with direct deposit)
0.70% → 0.90% (w/o direct deposit)
It’s behind the rate leaders (1.65% APY
@FirstFoundInc
&
@BreadFinancial
w/o direct deposit.)
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Inflation's impact on I Bonds:
Series I Savings Bonds purchased before May will yield 6 months of 7.12% and 6 months of 9.62% for a 12-mo average yield of 8.37%.
An old I Bond purchased in May 2000 will have 6 months with a composite yield of 13.39%.
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Fidelity Cash Management Account already has the features of an online checking account. Soon, it'll have yields to compete with online savings accounts. On June 15th, the Fidelity Government Money Market Fund ($SPAXX) will be an option.
New Post: Fidelity Cash Management Account To Add New Core Money Market Fund Option (SPAXX)
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After today's 50bp Fed rate cut, 5%+ CDs such as these two probably won't last long.
With Fed rate cuts nearing & with 1yr & 2 yr Treasury yields down to around 4.0% & 3.6%, some credit union CDs now have big yield advantages. 2 examples:
5.10% APY 15m @ Connexus CU
5.25% APY 12m @ Mountain America CU
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Today is the 2-year anniversary of the first Fed’s rate hike of this cycle:
Yields on Mar 16, 2022 when Fed Funds rate target went up 0.25% to 0.25%-0.50%:
$VMFXX = 0.12%
Ally Online Savings = 0.50%
Yields today:
$VMFXX = 5.27%
Ally Online Savings = 4.25%
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Compound interest can be great for investors, but it only really matters when there’s a significant yield with enough time.
Comparing simple interest with compound interest for a $10,000 investment over 30 years with varying yields
[ Thread ]
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6% CDs have returned! A few credit unions were offering them in Jan & Feb, but they didn't last long. This new one (6% APY 10-mo CD Special) is being offered by an Indiana credit union so not many are eligible. Nevertheless, it's nice to see a 6% CD!
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Rate hikes at
@Synchrony
Bank today places them ahead of most of the major online banks
High Yield Savings Account:
4.00% → 4.15% APY
14-month CD:
5.00% → 5.15% APY
Average online savings account yield as of Apr 3rd is 3.76%. Top yield is 5.10%.
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"Sales of Treasury bills – those with maturities of one year or less – through TreasuryDirect were $12.0 billion in January, a record. Before last August, that number hadn’t cracked $5 billion."
Oh no, are we getting near a top in bond mania? Of course, buying Treasury bills right now is quite logical. So give retail investors a pat on the back.
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Another online savings account reaches 5.25% APY:
@Evergreenbankgr
High-Yield Online Savings:
5.00% → 5.25% APY
4th bank to offer this APY. Other 3 include mobile bank Milli and Pac Western Bank & OceanFirst Bank (both via Raisin).
BUT still below $VMFXX (5.38% cmp yield)
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@RollinReisinger
Regarding WaMu's failure, JPMorgan Chase assumed all of WaMu's deposits, even those above the FDIC limits. Uninsured deposits at SVB aren't covered.
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@charliebilello
The Japan stock ETF, $EWJ, is almost 28 years old, and its average annual total return since its inception is only 1.33%. The odds aren’t 100% that the annual returns of $SPY will again be at least 10% for the next 30 years. Best to diversify globally and across asset classes.
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.
@CapitalOne
is the first major online bank to offer a 5% CD (5.00% APY 11-mo CD).
I would have thought that a long-term CD would be the first, but their rates are much lower (CapOne's 5-yr APY fell from 4.40% to 4.10% last week.)
My review @
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Marcus by Goldman Sachs is latest major online bank to offer 5% CDs
@marcus
10-mo CD Special (5.05% APY)
Other major online banks offering 5.00% APY CDs:
@synchrony
14-mo CD
@Ally
18-mo & 20-mo CD
@BarclaysBankUS
12-mo CD
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@DividendGrowth
“Those who keep learning will keep rising in life.”
- Charlie Munger
Good example of doing what you're saying
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"US regional bank executives say the pressure to pay up to keep depositors from leaving, which cut profits last year, is easing, paving the way for better earnings"
This is another reason for falling CD rates in the last month.
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I agree with
@TipsWatch
, buying I Bonds in April makes more sense than waiting for May. The odds seem low that there will be any significant increase in the I Bond fixed rate, which would benefit those waiting and in it for the long term.
Do you believe inflation remains a threat? If so, I Bonds probably ought to be in your portfolio. But then there's the question: When to make the purchase?
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@morganhousel
I think a few who experienced the bear markets of 2001/2002 and 2008/2009 didn't handle the 2020 crash well. I have a friend who moved most of his portfolio to cash early in the 2020 decline and has yet to move it back into stocks.
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Another major online bank lowers its savings account rate.
Capital One 360 Performance Savings:
4.35% → 4.25% APY
In March, Ally and Discover lowered their savings account rates.
So far in April, Marcus, AMEX and Capital One have cut their rates.
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Navy Federal (nation's largest credit union) has emailed members of its CD Special (5% APY, 15-mo) that'll be out on Monday. It'll be the largest bank/CU yet to offer a 5% CD.
Must have a military connection to join, but it's easier than you might think
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@doctorow
Unfortunately, this building was demolished in 2018.
"was originally built for Founders National Bank, eventually becoming the home of Bank of America for over 20 years until last August"
Found its history
@makeitMCM
&
@archpaper
Remember the beautiful bank we warned you about back in September? It is no more.
.
A major mid-century modern bank in Oklahoma City gets leveled. Via
@archpaper
.
#makeitmidcentury
#midcentury
#midcenturyarchitecture
#midcenturylost
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With Fed rate cuts approaching, now is a good time for a No Penalty CD
Who can most benefit?
1) Those who don’t want a traditional CD or anything which reduces liquidity
2) Those who already have quite a bit of funds in a high yield savings account (HYSA)
A thread🧵
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My review of today's Fed meeting with my take on deposit rates and strategies to maximize your cash yield. The advantage of money market funds over online savings accounts is growing.
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Treasury yields plummet after Fed meeting
Yields on Nov 1 → Dec 12 → Dec 13
1-yr: 5.37% → 5.14% → 4.94%
2-yr: 4.95% → 4.73% → 4.46%
5-yr: 4.67% → 4.23% → 4.00%
10y: 4.77% → 4.20% → 4.04%
Direct CD rates lag. One example: 5yr CD at BMO Alto = 4.90% APY
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New savings account rate leader:
My Banking Direct High Yield Savings:
5.35% → 5.55% APY
$500 min to open.
Note, My Banking Direct is a service of Flagstar Bank, N.A. which is a subsidiary of New York Community Bancorp, Inc. Its stock price is down ~70% in the last 6 months
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Great thread that shows the value of being a long-term investor in stocks
There is a historic long-term uptrend in the
stock market that is unsurpassed by any other investment vehicle.
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To match the after-tax return of a 1-year T-Bill, a 1-year CD would need to have a much higher yield than 5.47% in states with income taxes.
Examples using Fidelity's calculator
CA: 6.01%
GA: 5.99%
IL: 5.93%
MA: 5.93%
NJ: 5.97%
NY: 5.97%
VA: 5.99%
The 1-Year Year Treasury Bill yield has moved up to 5.47%, its highest level since December 2000.
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@charliebilello
@ycharts
It’s good to remember how much of a loss it takes to undo a gain.
loss = 1 - [ 1 / (gain + 1) ]
The following gain-loss examples result in zero gains:
+100%, -50%
+300%, -75%
+900%, -90%
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Unusual T-bill yield spread may be due to the debt ceiling fears:
via
@Reuters
"Short-term Treasury bill yields [...] were elevated as investors priced for higher rates and uncertainty around Congress raising the debt limit."
The spread between 3-month (5.21%) and 1-month (4.09%) Treasury yields has never been higher: 1.12%.
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