No one has been getting rich stuffing their money into a savings account, and it's bound to get even tougher, as the Federal Reserve shifts further into a rate-cutting mode.
The Federal Reserve announced another rate cut after its two-day policy meeting last week. A divided Fed lowered its benchmark interest rate by another quarter percentage point to a range of 1.75% to 2% in an effort to stave off a possible recession triggered by a global economic slowdown and the U.S. trade war with China.
But don't expect the Fed to respond to President Donald Trump's tweeted suggestion that the "Fed should get our interest rates down to zero, or less."
Not going to happen if the economy doesn't tank. Yet further rate cuts could be ahead.
"Global economic indicators are looking cooler, and I believe that the Fed will continue with its 'risk management' approach through next year," said Robert A. Dye, chief economist at Comerica Bank.
Dye's forecast includes another 25 basis-point cut after the Fed two-day policy meeting Dec. 10-11 and another quarter-point cut in June 2020.
After four rate cuts, short-term rates could be down to a range of 1.25% to 1.5% -- down a full percentage point from earlier in 2019.
No one has a precise crystal ball for the timing -- or the actual rate cuts for that matter -- given that the Fed will be heavily influenced by the overall health of the U.S. economy, as well as any slowdown overseas.
For consumers, the Fed's next rate cut would mean a slight break on the cost of borrowing on credit cards and other loans.
But savers are going to be making even less interest on money they're keeping at the bank.
Here's a look at how to get a bit more for your money:
Better rates aren't always found in branches
If you want to make more money on your money, you're likely going to have to move some money around to another bank.
And you must realize that even the best rates aren't as good as they were earlier this year.
Rates on some high-yielding savings accounts had been as high as 2.25% just a few months ago. But those rates have been coming down as banks began anticipating a round of rate cuts by the Fed.
In early September, online savings accounts were promoting an annual percentage yield of around 2% or higher -- including Marcus by Goldman Sachs (2% with no minimum deposit), Ally Bank (1.9% with no minimum deposit) and Citibank's Citi Accelerate Savings account (2.21%, available in select markets, including Michigan, with no minimum starting balance but a $500 minimum monthly balance is required to avoid a monthly service fee).
"Many are available with no minimum deposit, or with very modest minimum deposits," said Greg McBride, chief financial analyst for Bankrate.com.
Pay attention to the rules and fees, as well as any fine print.
The Marcus by Goldman Sachs High-Yield Online savings account has an APY of 2% and there is no minimum deposit to open the account and no fees. But if the account is opened but there is no deposit made within 60 days of opening the account, Marcus by Goldman Sachs may close the account.
And don't try to use an online savings account as a pseudo-checking account.
Federal law limits certain types of telephone and electronic transfers and withdrawals from online savings accounts to six per statement cycle, according to Ally Bank.
So you need to keep a careful watch on how many withdrawals you could be making from an online savings account. Ally Bank, for example, charges $10 per excessive transaction.
Limits would apply to things like online and mobile banking transfers, as well as transfers from your online savings account to another of your Ally bank accounts.
"If you go over this limit, we charge $10 for each of these transactions after the initial six," Ally Bank states.
"If you exceed this limit on more than an occasional basis, we are required to close your Online Savings Account," the bank states online. You can make as many deposit as you'd like or call the bank at any time to request a check made out to you.
Remember, too, the yields on these savings accounts are variable so rates could fall when the Fed cuts rates.
Even though the bank can change those rates on high-yield savings accounts at any time, McBride said, the consumer can readily move their money someplace else at any time, too.
McBride noted that many consumers who just continue to keep their money in a regular savings account could be getting around 0.1% -- or $10 in interest each year on $10,000 in savings.
By contrast, they could be making $200 a year in interest on $10,000 in savings if they find a bank online offering 2% for an online savings account or money market account.
"The issue is not whether your 2.5% account goes to 2.25% or 2% later this year, but rather, why in the world do so many people have their savings in a bank earning 0.1%?" McBride said.
CDs will still sputter along
The average yield on a one-year certificate of deposit is merely 0.86% -- up slightly from 0.75% a year ago and down from 0.98% in September 2009.
The average yield on a five-year CD is 1.22% -- down from 1.32% a year ago and down from an average 2.23% in early September 2009.
The days of 4% or 5% on a CD are long gone. Even the top-yielding CDs are around 2.4% to nearly 2.6%, according to Bankrate.com. And the top-yielding five-year CDs are running around 2.5% to 2.6% in most areas.
"Savings rates will not be immune from a series of Fed rate cuts but the top-yielding accounts will remain competitive," McBride said.
For most savers, there is limited appeal to locking in a rate for five years, especially at a rate that may not even keep up with inflation, he said.
In many cases, savers who don't have a good deal of money set aside would be "better off keeping that money in a liquid savings account or shorter maturity CD in case they need the money during an economic downturn," he said.
Retirees may be better off staggering some of their money in some longer-term CDs, short-term CDS and other higher-paying savings accounts.
Some higher CD rates being offered include:
--Marcus by Goldman Sachs has a seven-month, No-Penalty CD that has a rate of 2.25% with a minimum deposit of $500 and no early withdrawal penalty.
--Comerica Bank has an annual percentage yield of 2.25% on a 12-month, fixed-rate CD but that requires a minimum deposit of $10,000 in new money to the bank. The customer also must have or open a new Comerica checking account. The CD account must be opened by Oct. 4. But the offer is subject to change at any time.
Rates keep falling, but keep saving anyway
Unfortunately, some economists say the days of the robust, free-spending consumer could be nearing an end.
Even so, many people may not be prepared for the next recession.
"Consumers rarely see downturns in the economy until they start to lose their jobs, or the stock market takes a dive. Neither are flashing warning signs yet," wrote Scott Anderson, chief economist for the Bank of the West, in a report.
U.S. stock prices overall remained just below recent highs as of early September.
Job growth began slowing somewhat in August, firming up the odds for another quarter-point rate cut in September and possibly raising the chances of another rate cut in October, Anderson said.
Yet Anderson noted that personal savings rates already have come down sharply, dropping to 7.7% in July from a high of 8.8% in February. The personal saving rate is the percentage of disposable income that people save. It's a clue to financial health and consumer behavior.
"In short," he said, "many consumers have been spending beyond their means over the past few quarters."
"Real consumer spending will not be able to maintain its current pace of growth for much longer."
Anderson said his forecast calls for a sharp slowdown in U.S. growth next year with a 40% chance of a recession by the second half of 2020.
We're seeing some pockets of trouble for workers already, too.
U.S.-based employers ramped up the pace of downsizing in August, compared with July, according to Challenger, Gray & Christmas, an outplacement firm.
Companies announced plans in August to cut 53,480 jobs from their payrolls -- up nearly 38% from July's pace.
Many of those cuts are blamed on the trade war, as well as a shakeout in some industries, such as retailing, energy and manufacturing.
The automotive sector has announced 36,148 cuts so far in 2019, the highest eight-month total since 2009 when 128,906 jobs were cut.
Given that outlook, consumers may need to bulk up on their savings to weather any economic storms ahead even as the Fed moves to cut rates.
About The Writer
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at firstname.lastname@example.org.
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