Are Money Market Rates Ever Going to Increase?

money market rates BanktruthSince 2008, interest rates for money market accounts have rarely gone above 1.5%. When can we expect interest rates to climb upwards of 2%? Kiplinger is predicting money market rates will rise to 3.5% within the next year, while others are skeptical based on the past year. Not all rates are rising as they depend on the United States Treasury to set the rate. This rate has hardly climbing more than one-half percentage in the past six years.

Understanding the Federal Reserve

The Federal Reserve has a strict monetary policy related to short-term rates. The Fed controls the federal funds rates, which allows banks to determine the interest they can provide to their investors and charge for loans and other accounts. The rate has been low for six years as the economy hasn’t truly recovered from the Great Recession of 2007-2009. Financial experts feel the rates will remain low until unemployment is below 6.5%. With more people in the workforce, people will start spending more money. A stronger economy makes it easier for banks to make money on loans, and allows them to give back larger interest rates for short-term investments like money markets, CDs, and savings accounts. What if you choose to lock your money into a long-term money market or CD? The rates on the CDs and money markets are higher if a person is willing to lock money into an account for a set amount of time.

The Plan for Savers

What should savers do about their money? Which banks are providing the best money market rates? Since rates vary often, we have compiled a list of our favorite banks for savings and MMAs. Based on our history of monitoring the rates, we do not predict a major climb in interest rates. However, some of the long-term savings accounts look like they are going up. Money market funds and long-term CD rates are on the rise. If you are retired, laddering CDs is a great way to make some decent money from interest rates.

money market 2014 banktruth

The best rates will come from online banks as they have lower overhead expenses. The lower operating costs of online banks allows them to give this money right back to the customer. It is frustrating to see such low rates as retirees were often making 8 to 10 percent in money market funds in the past.

The good news is rates will rise again! The future does look brighter as the rates are slowly creeping up past 1%, and they are expected to slowly climbing over the years.

Investing in CDs or Money Markets?

Buying a CD today is a great idea if you want to set your money aside and let it grow. We have seen some savers lock into a 1% 5-year CD account, only to become frustrated when the rates climb. Currently (Nov. 2014) the highest-paying CD is sitting at 2.25% APY. Taking advantage of the high rate is a great way to ensure your money is going to grow. If you follow a CD laddering approach, you can easily end up with even higher rates when this CD reaches maturity. Comparing CD rates to current money market rates is the best way to find out which one provides the highest return. One other concern with a CD is the fact that your money is locked into the account. With a money market account, you have control over the liquidity of the account. You are limited to 6 withdraws per month. Based on which money market you have, you will need to pay fees if the balance falls below a specific level.

When to Invest in Money Markets

With the rates returning a low amount, you may be wondering when it is the right time to open a new account. Money market accounts make sense in a number of ways including the following:

  • Safety
  • Liquidity
  • High-interest on long-term cash holdings
  • Easy-to-manage
  • Protection from instability

Money market accounts will gain appeal as the interest rates rise again. We have seen several of our savers make the shift from online savings accounts to money market accounts when the rates rise. Some have moved money once in their money market account back to their online savings account where they are earning interest rates of 1%.

How do Money Markets Earn Money?

The money funds are a mutual fund that is invested in short-term debt issued by companies and the government. The average yield on taxable money funds is 0.01% a year for $1 share price. These low yields make money markets undesirable for risky investors. However, investors that want a safe place to stash some cash, money markets are a great solution. The problem we see with interest rates is related to the management of companies. Poor management often causes a company to tack on larger fees when they sell the funds as they need to make up the lack of surplus somewhere. When the interest rates rise, companies will start to lower or waive fees, allowing individuals to earn a decent return from their money market investments.

Determining Your Savings Options

online savings 2014 banktruthComparing interest rates on money markets, CD accounts, and online savings accounts is the only way to determine which investment will provide the best return. Each option has a list of pros and cons based on your financial needs. If you want a safe and liquid investment for short-term savings, money markets are the best solution. Individuals seeking a longer-term cash holding, consider using online savings accounts or CD accounts. The most important element when choosing the right savings venue, is to ensure the bank is backed by the FDIC. Some online rates are higher from others, but a large gap shows the bank might not be backed by the FDIC. We thoroughly check each bank and provide information about the history of the bank, and their FDIC status. One way to focus on making money is to compare the interest rates and create a ladder approach to savings. Don’t park your cash in an account with a dismal interest rate. Make the switch to a higher-paying savings account where you can safely grow your nest egg!

Written by Nicole Mark

Our Top 5 Ways to Find a Savings Account

top 5 ways to find a savings account Banktruth.orgWhen you are seeking a place to stash your extra cash, you need to shop around. A traditional savings account can earn a low-interest rate, making it a poor decision if you want to see your money grow. Moving toward an online savings account or a money market account is our recommendation if you want to earn 7 times the national average. Fees, interest rates, and minimum balances vary drastically with each bank. At Banktruth, we do the hard work for you to find the best online savings accounts with high-interest rates, excellent customer service, low fees, and a long-term solution for your money! Here are our top 5 ways to find a savings account.

Compare Interest Rates

The savings rates are low-interest with several traditional brick-and-mortar banks. The overhead costs of these banks coupled with a low-interest rate offered by the Federal Reserve leads to yields that rarely exceed .05 percent.

Online savings rates are 7 times the national average! Typical online savings rates average 0.85% – 1.10%. These rates were even higher in the past, giving us hope they will climb once again as the economy strengthens. Savings accounts are an essential aspect of a solid financial plan. Turn to your savings in an emergency instead of relying on credit cards, as credit cards can cause you to get into a debt cycle, and force you to pay upwards of 9% interest. Having a savings account available to fund unexpected expenses is the best way to become financially stable.

To start saving money, we recommend savers start small if you do not have a large amount of money available. Even placing $5 a month into a savings account will give you something extra to fall back on when there is an emergency. While most financial experts agree, everyone should have 3-6 months’ worth of their income saved, the average American has $3,100 saved according to Pitney Bowes. Bankrate reported that 28 percent of Americans do not have savings. Planning ahead is the best way to prevent yourself from financial ruin. Use our online savings rate chart here to find the best rates to help you grow savings you can rely upon.

Watch Out For Fees

One thing that will significantly decline your savings is bank fees. Some banks will charge fees for withdraws, balance transfers, and monthly fees to maintain an account. To make it easier for you to find banks without fees, we have reviewed hundreds of banks from all around the United States. Each bank is rated based on their fees, customer service, and ease-of-use.

Each month we review the banks again to find out if they are changing fees and account terms. Finding a bank with low fees allows savers to grow their money easier without a major headache.

After selecting a bank, set up automatic transfers as this is an effective way to save money over time. Most people do not remember to transfer money with each paycheck. Automate your account transfers to help your savings will grow before you have the temptation to spend the money.

Most online banks will transfer a fixed amount of money based on your savings goals. You can change this amount as needed to suit your savings needs. Banks that currently charge fees normally waive account fees if you establish automatic transfers.

Some banks go an extra step to entice people to save money by offering a cash bonus for automatic transfers. Others will provide bonuses once your savings account reaches a certain amount (U.S. Bank provides $50 incentives once your balance crosses the $1,000 mark).

online savings rates

Mobile Deposits

Another way to find a great savings account is by search for a bank providing mobile services. Mobile deposit is a great way to send your money to the bank immediately so it can start to earn interest. Mobile access to your savings account makes it easier for you to have control over your savings account as you can access it 24/7. Around 64 percent of the top banks provide mobile access to bank accounts. When banks are closed for holidays and weekends, mobile deposit is the best way to ensure your money is going to the savings account.

Customer Service

What makes a bank desirable? Not only are high interest rates great; the people who work for the bank will make up a large part of your savings experience. Does the bank provide online customer support? Is their phone support easy to talk to? Seek a bank with high customer service ratings as it shows this bank cares about their customers, and they want to help you meet your savings goals. Banktruth provides in-depth bank reviews of the customer service with several banks, and we rate them based on our experience and the experience of our readers.

Liquidity & Insurance

How easy is it to pull your money from the bank? Is it easy to transfer your money through the online site or mobile app? ATM transfers are another must-have savings feature you need if you end up requiring your money for emergencies. If the online bank does not have a location near your home, find out where you can access the money through ATMs that will charge low fees.

Federal regulations limit savings withdrawals to six each month. Savers must be careful when transferring funds from the account as you could reach your limit. Watch out for banks that charge fees on transferring funds as it normally costs you more money in fees than you will earn in interest.

Never work with a bank that will be unable to provide you with deposit insurance. The FDIC provides insurance up to $250,000 per account if the bank fails. When we review banks, we always look at the history of the bank to find out if they are stable. Some of the highest-paying online savings accounts are not covered with FDIC protection. While you can earn more money, you are putting your money at risk if the bank fails.

Review our bank rate chart to track the banks with the highest interest rates over the year. Using these five tips to find a savings account, we are confident you will find an online bank you can trust to help you grow your money!
Written by Nicole Mark

Should You Save Money When You Have Debt?

Spend or Save Money Banktruth.orgAre you in the position of living paycheck-to-paycheck? Determining if you should take all your money to pay off debt, or set some aside for savings is a difficult decision. Since there is a marginal amount of money available to place in savings, will $25 will a major impact on your ability to grow a solid savings? To make the right decision it is important to set your expectations for the future and your current financial health.  Here are some things you need to consider if you are debating whether or not to save money when you are drowning in debt.

Emergency Savings Account

What is your current emergency savings account plan? We all need to have something set aside for emergencies even if you are paying car loans, student loans, personal loans, and credit card bills. An emergency can happen at any time, causing a person to need access to cash in a hurry. Financial expert Dave Ramsey recommends everyone starts the debt payoff process by placing $1,000 in a savings account before you start paying down your debt. Loans and credit cards are not a great “back up” plan when you have a car repair, tooth extraction, or other emergencies.

Emergency expenses will cause additional debt problems as it places a strain on you to borrow more money. While the goal is to save at least three months’ worth of expenses in a savings account, a small start of $25 a paycheck is going to help. An emergency savings account is one of the best financial decisions a person can make when you focus on paying off debt.

Calculate Your Debt

To know how much money you can place in a savings account, it requires spending time calculating your existing debt. Most people do not realize how badly they are drowning in debt until they sit down and do the paperwork. Create a list of all your loans including your mortgage or rent, car loans, credit cards, and anything else you are paying off.  Write down the interest rate and the monthly payment on each loan to get an idea of how much of your money is going toward debt. To get an idea of how much money you are wasting in interest, times the loan amount and the current interest rate amount. If you agreed to a 9 percent interest rate on a car loan, it can be astonishing to see you are paying $900 a year on a $10,000 loan!

At this point, it is wise to start contacting the bank to find out if they will reduce the interest rate on your loans. The other negotiation option is to ask a bank for a lower payment. Reducing how much you pay out each month provides you with extra money to set aside for savings.

Credit Card Debt 2014 Banktruth
Source: NerdWallet

Earn More with a Savings Account

The other surprising statistic is the measly amount of money your savings account is currently providing. If you are setting aside $100 a month, but your interest rate is well below .10%, you are earning a few pennies on the dollar for savings. Our Banktruth team works hard to find the best savings account rates to help you earn more money each month. Place your money into a bank account where it can earn upwards of 1 percent or close to 1 percent if you plan on meeting your savings goals. In the current market, it is challenging to earn even 1 percent, but the interest rates with online accounts will always beat the interest rates from brick and mortar banks. Our savings rate comparison chart provides updated rates daily to help you find the best bank for your needs.

Calculating Debt Payments vs. Savings

Calculate how much money you will earn in a savings account each month compared to how much money you would earn if you placed that towards debt. Comparing the differences of both scenarios will help you make the correct decision for your finances.

Planning For the Future

Another important element when comparing the impact of saving money versus paying the money toward debt, is planning for your financial future. Are you planning to get a second job? If you expect additional income in the future, it is important to consider what you want to do with the money. Tax refund, payday checks, financial gifts, and other income boosts can be used as part of your savings plan, or can be used as a one-time debt payment. Having extra money to work with will make it easier to pay off debt, or to have extra breathing room for a month or two. Consider placing 10 percent or more of the money to your savings account if you plan on using the money to pay down debt.

Spend Save Money

Establish Savings Goals

The other important aspect of your income is to establish savings goals. What are your future plans? If you want to start your own business, purchase a new car, go to college, or buy a home, it helps to have a financial plan in mind for each option. Clear savings goals are the best way to find different savings account options that will provide a proper return.

Paying off debt is a major financial goal, but it cannot be done without a commitment. If you do not make changes in your current spending habits, you will never have extra money set aside to save. There are different debt programs that can help individuals in financial distress. Anyone close to declaring bankruptcy must consider various options that will help. Debt consolidation loans are possible for a number of people with decent credit and steady incomes. If you have poor credit, you will find it is harder to obtain consolidation loans. Consider using a credit counseling agency as they can reduce the interest rates and monthly payments on your accounts. Credit Counseling is a great way to set a clear path for debt resolution and restart your financial life. Finding ways to save money when you have debt is one way to prevent yourself from getting further in debt.

Written by Nicole Mark