Traders expect the Fed to start cutting interest rates as soon as September, potentially lowering cash yields, but there are still a few that offer yields above 5% for those looking to park their money. In that sense, Goldman Sachs’ Marcus recently raised the annualized interest rate on its one-year CD to 5.15%, reflecting a 15 basis point increase from the previous week, BTIG found. One basis point is equal to one-hundredth of a percent. Marcus’s rate hike puts it in an exceptional group of financial institutions that continue to offer savings rates in the 5% range. Citizens Access and Capital One Financial each offer one-year CDs with a 5% yield, while Sallie Mae offers a 5.15% APY. Bread Financial leads the way with a 5.25% APY on its one-year CD. Yields are solid, but they’re not likely to last. The Fed’s rate hike cycle, which began in March 2022, has had the happy side effect of boosting yields on money market funds, CDs, high-yield savings accounts, and other cash alternatives. As interest rates fall, the party is coming to an end and yields for investors hiding in these short-term instruments will plummet. “In general, we expect online bank deposit rates to decline,” BTIG analyst Vincent Kayntic said in a Friday report. “Nearly all banks in our coverage group expect their balance sheets to be flat to declining.” In fact, Lending Club recently cut the APY on its one-year CDs to 4.2%, reflecting a 95 basis point cut, Kayntic noted. “Lending Club’s move is a surprise; they’ve typically been at the top of the deposit rate table, but now they’re at the bottom,” he said. CDs and money market funds may be good places for investors to park short-term cash. CDs, in particular, allow investors to enjoy today’s high yields for a period of time. But there are trade-offs for savers. For example, investors may lose some of their interest if they “cash out” a CD before maturity, which makes these funds less liquid than money market funds. Also, banks may renew maturing CDs at lower rates than originally offered. Over the long term, investors who are heavily concentrated in cash risk missing out on attractive returns from stocks or may not be able to secure higher yields with longer-term fixed-income assets.
The bank has raised its one-year CD yield to more than 5%.
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