By Ian Salisbury
It's gotten a lot harder to spot online savings accounts that pay 5%. But investors who look can still find them, and, with Federal Reserve interest-rate cuts seeming less certain than they did just a few weeks ago, they could be a good deal.
Earlier this year, it was relatively easy to find high-yield savings accounts, with the benchmark federal-funds rate at its highest level in more than a decade. Since then, the Fed has cut the rate by three-quarters of a percentage point to a range of 4.5% to 4.75%.
Savings accounts at popular banks have largely followed suit. Ally Bank's flagship savings account pays 3.85%, down from 4.2% in September. Capital One's pays 3.9% down from 4.25%.
But the best rates have always been found at smaller banks that rely on higher rates -- rather than well-known brand names -- to draw in customers. Pibank, a brand of Intercredit Bank, currently pays 5.5%, according to DepositAccounts, a site which tracks market rates. TIMBR, a division of Bridgewater Bank, pays 5.25%, and Ivy Bank, a brand of Cambridge Savings Bank, pays 5%.
All three are backed by the Federal Deposit Insurance Corp., meaning there is little risk for investors seeking the best rates.
Banking analyst Ken Tumin says savers should still expect rates to eventually drift down. "The remaining 5% banks will slowly go under 5% in the next four to five months," he says.
That said, top-yielding savings accounts could still be an attractive option. The highest yield available from retail money-market funds -- a mutual fund alternative to savings accounts -- is 4.83%, with most top options in the 4.75% range, according to Crane Data, a site that tracks rates.
SPDR Bloomberg 1-3 Month T-bill ETF, an exchange-traded fund that targets short-term Treasuries, yields 4.5%. Although it's worth noting that T-bills offer other advantages -- like interest that isn't subject to state and local taxes.
And, while savers can't count on 5% rates to last forever, it now appears like they may not decline as quickly or as deeply as analysts expected just a few weeks ago. Futures market data suggest there is a roughly 50-50 chance the fed-funds rate will be at 4% or higher in September 2025. As recently as September, futures markets put those chances at less than 1%.
While a host of factors are at play, investors can thank a persistently strong economy and President-elect Donald Trump's election win earlier this month, which raised the prospect of new important tariffs and large tax cuts, both of which tend to stoke inflation. Those factors could slow down the decline in benchmark interest rates.
Lending growth has also ensured small banks will remain hungry for deposits, making them reluctant to lower rates any further than necessary, says Nathan Stovall, director of the financial institutions research at S&P Global Market Intelligence.
"Despite the Fed cutting, we haven't seen the rates come down that much for consumers," he says. "Deposit competition remains pretty fierce. Banks still need the funding, because they have continued to see loan balances go up."
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 23, 2024 03:00 ET (08:00 GMT)
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