Traders expect the Federal Reserve to start cutting interest rates as soon as September, causing returns on cash to fall, but some places are still offering yields in excess of 5% to those willing to park their money. BTIG found that to this end, Marcus, owned by Goldman Sachs, recently increased the annual interest rate on its 1-year certificate of deposit to 5.15%, an increase of 15 basis points month-on-month. One basis point is equal to one hundredth. Marcus’ yield increase makes it one of the unique financial institutions to continue to offer a 5% interest rate on deposits. Citizens Access and Capital One Financial each offer 1-year CDs with a 5% yield, while Sallie Mae offers 5.15% APR. Bread Financial ranks among the best, with an APY of 5.25% for 1-year CDs. While yields are stable, they may not last long. The Federal Reserve’s rate hike cycle that began in March 2022 has had the pleasant side effect of boosting yields on money market funds, certificates of deposit, high-yield savings accounts and other cash proxies. As interest rates slide, the feast will begin to end—and investors holed up in these short-term instruments will see their yields plummet. “Overall, we still expect online banking deposit rates to fall,” BTIG analyst Vincent Caintic said in a note on Friday. “Nearly all banks in our coverage expect balance sheets to be flat or declining. ” In fact, Caintic found that LendingClub recently cut its 1-year CD APY to 4.2%, equivalent to a 95 basis point cut. “LendingClub’s move is surprising because they are usually at the top of the deposit rate table but are now at the bottom,” he said. For investors, certificates of deposit and money market funds could be good places to store some short-term cash. , especially since CDs allow investors to enjoy today’s higher yields for a period of time. However, there are trade-offs for savers. For example, if an investor “burns” a CD before maturity, they may lose some interest, making these funds less liquid than money market funds. It is also possible for a bank to renew a maturing CD at a lower interest rate than originally offered. Over the long term, investors who are highly concentrated in cash run the risk of missing out on attractive equity returns, or they may not be able to lock in higher yields using longer-dated fixed income assets.
