Best Interest Rates on Cash – December 2020

Here’s my monthly roundup of the best interest rates on cash for December 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and there are many lesser-known opportunities to improve your yield while still being FDIC-insured or equivalent. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 12/10/2020.

Fintech accounts
In the currently low-interest rate environment, individual investors can get higher-than-market rates by moving their money into fintech accounts that are trying to achieve high short-term growth through a combination of lower cost structure and venture capital. I will define “fintech” as an app software layer on top of a different bank’s FDIC insurance backbone. You should read about the story of the Beam app for potential pitfalls and best practices. Below are some current options with decent balance limits:

• 3% APY on up to $100,000. HM Bradley requires a recurring direct deposit every month and a saving rate of at least 20%. See my HM Bradley review.
• 3% APY on 10% of direct deposits. One Finance lets you earn 3% on auto-save deposits (up to 10% of your direct deposit, up to $1,000 per month). See my One Finance review.
• 3% APY on up to $15,000. Porte requires a one-time direct deposit of $1,000+ to open a savings account. See my Porte review.
• 2.15% APY on up to $5k/$30k. OnJuno just went live. More details to come after I open an account.

High-yield savings accounts
While the huge megabanks pay essentially no interest, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

• Affirm has the top rate at the moment at 1.00% APY with no minimum balance requirements. This is fueled by other folks buying jeans on a payment plan. Unfortunately, Chime just announced a drop from 1% to 0.50% APY. There are several other established high-yield savings accounts at closer to 0.50% APY for now.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

• No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 0.45% APY with a $500 minimum deposit. AARP members can get an 8-month CD at 0.55% APY. Ally Bank has a 11-month No Penalty CD at 0.55% APY for all balance tiers. CIT Bank has a 11-month No Penalty CD at 0.30% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
• CommunityWide Federal Credit Union has a 12-month CD at 0.90% APY ($1,000 min). Early withdrawal penalty depends on how early you withdraw. Anyone can join this credit union via partner organization ($5 one-time fee).

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.

• The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.02%. Vanguard Cash Reserves Federal Money Market Fund (formerly Prime Money Market) currently pays an 0.03% SEC yield.
• Vanguard Ultra-Short-Term Bond Fund currently pays 0.55% SEC yield ($3,000 min) and 0.65% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
• The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 0.30% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 0.51% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that there was a sudden, temporary drop in net asset value during the March 2020 market stress.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. Right now, this section isn’t very interesting as T-Bills are yielding close to zero!

• You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 12/9/2020, a new 4-week T-Bill had the equivalent of 0.07% annualized interest and a 52-week T-Bill had the equivalent of 0.10% annualized interest.
• The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a -0.01% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -0.05% (!) SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.

• “I Bonds” bought between November 2020 and April 2021 will earn a 1.68% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
• In mid-April 2021, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.
• See below about EE Bonds as a potential long-term bond alternative.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore.

• One of the few notable cards left in this category is Mango Money at 6% APY on up to $2,500, along with several hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. If you want rates above 2% APY, this is close to the only game in town.

• Consumers Credit Union Free Rewards Checking (my review) still offers up to 4.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. The Bank of Denver has a Free Kasasa Cash Checking offering 2.50% APY on balances up to $25,000 if you make 12 debit card purchases and at least 1 ACH credit or debit transaction per statement cycle. (BoD now says debit transactions must be $5 minimum each and must reflect “normal, day-to-day spending behavior”.) If you meet those qualifications, you can also link a savings account that pays 1.50% APY on up to $50k. Thanks to reader Bill for the updated info. Presidential Bank has another competitive offering. Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

• Hiway Federal Credit Union has a 5-year certificate at 1.35% APY ($25k minimum) and 1.25% APY with a $10,000 minimum. Early withdrawal penalty is 1 year of interest. 4-year at 1.20% APY, and 3-year at 1.10% APY ($25k minimum). Anyone can join this credit union via partner organization ($10 one-time fee).
• You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard has nothing special right now, but it might still pay more than your other brokerage cash and Treasury options. Be wary of higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

• Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Watch out for higher rates from callable CDs from Fidelity.
• How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently 0.10%). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. Purchase limit is $10,000 each calendar year for each Social Security Number. As of 12/9/2020, the 20-year Treasury Bond rate was 1.48%.

All rates were checked as of 12/10/2020.