Cash allocation in negative interest rate environment

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InvestInLife
Posts: 153
Joined: Mon Aug 22, 2016 2:36 pm

Cash allocation in negative interest rate environment

Post by InvestInLife »

I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
DesertMan
Posts: 311
Joined: Tue Dec 07, 2010 12:54 pm

Re: Cash allocation in negative interest rate environment

Post by DesertMan »

Look for mega yield savings accounts like NetSpend, St. Mary's Bank, DCU, etc. That will get you 5-6% on the first few thousand dollars of your savings in place of CDs. Combine with a high yield rewards checking account for your cash needs. I would recommend you go with an RCA that has easy requirements (like web debit card purchases) and a history of not running teaser rates, so maybe look in the 2nd tier of rates which is around 1.5% right now.
Northern Flicker
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Re: Cash allocation in negative interest rate environment

Post by Northern Flicker »

Where are CD rates negative? They are positive everywhere I've looked. You may be able to get a higher yield with an online savings account, as mentioned.
Risk is not a guarantor of return.
000
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Re: Cash allocation in negative interest rate environment

Post by 000 »

DesertMan wrote: Tue Aug 25, 2020 9:06 pm Look for mega yield savings accounts like NetSpend, St. Mary's Bank, DCU, etc. That will get you 5-6% on the first few thousand dollars of your savings in place of CDs.
Is there a catch with these? i.e. need to do so many transactions per month, etc...
DesertMan
Posts: 311
Joined: Tue Dec 07, 2010 12:54 pm

Re: Cash allocation in negative interest rate environment

Post by DesertMan »

000 wrote: Tue Aug 25, 2020 9:56 pm
DesertMan wrote: Tue Aug 25, 2020 9:06 pm Look for mega yield savings accounts like NetSpend, St. Mary's Bank, DCU, etc. That will get you 5-6% on the first few thousand dollars of your savings in place of CDs.
Is there a catch with these? i.e. need to do so many transactions per month, etc...
Only NetSpend has any real catches (pick the right plan and avoid inactivity fees) and these can be satisfied using Ally Bank transfers. You can do some searching to find guides on how to do it.
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Noobvestor
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Re: Cash allocation in negative interest rate environment

Post by Noobvestor »

InvestInLife wrote: Tue Aug 25, 2020 7:48 pm I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
Rates on safe fixed income (outside of limited outliers like Series I and EE savings bonds) are negative in real dollars basically across the board. But invest we must, so look for the least-bad option(s) for your fixed-income assets. I have a mix of TIPS, Treasuries, I and EE.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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grobertj
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Location: Greensboro, NC

Re: Cash allocation in negative interest rate environment

Post by grobertj »

Ally's Savings rate is 0.8% and their checking rate is 0.5% if you maintain over $14,000. Plus, both are FDIC protected.
The only constant is CHANGE!!
optimpessim
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Joined: Sun Nov 25, 2007 2:32 pm
Location: Maryland

Re: Cash allocation in negative interest rate environment

Post by optimpessim »

I was on the Ally site today. I am considering putting more funds into my savings account there. I noticed that it says FDIC is "inactive". I was shocked. Is it true?
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grobertj
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Re: Cash allocation in negative interest rate environment

Post by grobertj »

optimpessim wrote: Sat Aug 29, 2020 1:01 pm I was on the Ally site today. I am considering putting more funds into my savings account there. I noticed that it says FDIC is "inactive". I was shocked. Is it true?
NO! I'm not sure what you saw, but if you scroll down the details of Savings Accounts, you'll see it's definitely FDIC insured.
The only constant is CHANGE!!
optimpessim
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Joined: Sun Nov 25, 2007 2:32 pm
Location: Maryland

Re: Cash allocation in negative interest rate environment

Post by optimpessim »

Thank you grobertj. I went back to the Ally Site to check and found, to my relief, that you are right. My Saving Account is FIDC insured!!
Apparently Ally also sells securities so I must have been looking at info regarding Ally Invest, not Ally Bank.
JimmyJammy
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Joined: Sat Oct 26, 2013 1:08 pm

Re: Cash allocation in negative interest rate environment

Post by JimmyJammy »

Noobvestor wrote: Wed Aug 26, 2020 4:26 pm
InvestInLife wrote: Tue Aug 25, 2020 7:48 pm I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
Rates on safe fixed income (outside of limited outliers like Series I and EE savings bonds) are negative in real dollars basically across the board. But invest we must, so look for the least-bad option(s) for your fixed-income assets. I have a mix of TIPS, Treasuries, I and EE.
Why "must" we? Personally, chasing down a high rate savings account which requires opening an account at yet another firm is not worth the hassle at these rates. I like to stick to what I can buy at Vanguard, TD Ameritrade and Merrill Edge. That's enough for me.

I like your TIPS. and Treasuries idea. Are you doing short term treasuries or long?
cowbman
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Re: Cash allocation in negative interest rate environment

Post by cowbman »

I'm might break BH here, but if you are a T-Mobile customer, their checking account option is hard to beat currently. $200 deposit per month to get 1% + free checks, ATMs, etc. 3% on up to $3k too.
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Noobvestor
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Joined: Mon Aug 23, 2010 1:09 am

Re: Cash allocation in negative interest rate environment

Post by Noobvestor »

JimmyJammy wrote: Sat Aug 29, 2020 2:13 pm
Noobvestor wrote: Wed Aug 26, 2020 4:26 pm
InvestInLife wrote: Tue Aug 25, 2020 7:48 pm I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
Rates on safe fixed income (outside of limited outliers like Series I and EE savings bonds) are negative in real dollars basically across the board. But invest we must, so look for the least-bad option(s) for your fixed-income assets. I have a mix of TIPS, Treasuries, I and EE.
Why "must" we? Personally, chasing down a high rate savings account which requires opening an account at yet another firm is not worth the hassle at these rates. I like to stick to what I can buy at Vanguard, TD Ameritrade and Merrill Edge. That's enough for me.

I like your TIPS. and Treasuries idea. Are you doing short term treasuries or long?
I think I may have oversimplified my position, which is basically: we have to put money somewhere (be it cash under the mattress or options). I actually agree with you that chasing down a few fractions of a percent for limited-capacity, high-yield savings accounts is more pain than it's worth.

I have a combination of Series I and EE bonds, MM/savings, intermediate and long Treasuries and intermediate TIPS, which all serve a single, basic, overarching target: an intermediate duration and balance of nominal and real returns (this is on the fixed-income side, apart from stocks, etc...).

My advice is to figure out a target allocation then achieve that as cheaply, efficiently and effectively as possible. For me it's 50/50 nominal/real, intermediate duration. Series I and EE are my 'favorite' holdings but they have limitations (e.g. annual caps), so I fill in the gaps around them.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Cash allocation in negative interest rate environment

Post by Valuethinker »

InvestInLife wrote: Tue Aug 25, 2020 7:48 pm I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
I don't believe US banks are crediting negative rates of interest.

Do you mean negative *real* rates? That has been true for years?
shess
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Re: Cash allocation in negative interest rate environment

Post by shess »

Valuethinker wrote: Sun Aug 30, 2020 2:31 am
InvestInLife wrote: Tue Aug 25, 2020 7:48 pm I keep my savings in a revolving CD ladder. Today I saw the CD rates are negative.
What does one do?

PNC Savings account is at 1%. I'd still be losing to inflation, but losing less.
I don't believe US banks are crediting negative rates of interest.

Do you mean negative *real* rates? That has been true for years?
Yeah, my assumption all along has been that my cash's purchasing power is going to leak away to inflation, and my main job with it is to stem the leakage. Right now NOMINAL rates are getting very low, but this year is the first year in awhile where I wonder if the rates on my "high-yield" savings account might actually beat inflation.
Cyanide123
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Joined: Sun May 05, 2019 9:14 am

Re: Cash allocation in negative interest rate environment

Post by Cyanide123 »

I'm moving most of my assets to my individual broker account and sell cash covered puts. For example, 1 year sep 17 SPY put for 275 strike price has a premium of $1275. So that's a 4.6 percent return on your cash. Plus it's also essentially a limit order for the sp500 at a discount from today's price. Worst case scenario, spy drops below 275 and you buy spy at a bargain price of 275 :)
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Cash allocation in negative interest rate environment

Post by JimmyJammy »

Cyanide123 wrote: Sun Aug 30, 2020 3:14 am I'm moving most of my assets to my individual broker account and sell cash covered puts. For example, 1 year sep 17 SPY put for 275 strike price has a premium of $1275. So that's a 4.6 percent return on your cash. Plus it's also essentially a limit order for the sp500 at a discount from today's price. Worst case scenario, spy drops below 275 and you buy spy at a bargain price of 275 :)
I like that idea!

I recently got a bundle of cash selling Sept 18 puts on Facebook at $175 (this was back when they called Zuckerberg to testify in Congress and everyone was nervous).

Next panic dip on the market or a stock like that would be a good time to sell puts.

Or, this week would be a great time to sell Calls on current over-stretched positions.
dave1054
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Re: Cash allocation in negative interest rate environment

Post by dave1054 »

Cyanide123 wrote: Sun Aug 30, 2020 3:14 am I'm moving most of my assets to my individual broker account and sell cash covered puts. For example, 1 year sep 17 SPY put for 275 strike price has a premium of $1275. So that's a 4.6 percent return on your cash. Plus it's also essentially a limit order for the sp500 at a discount from today's price. Worst case scenario, spy drops below 275 and you buy spy at a bargain price of 275 :)
I like options but be aware it is a short term capital gain no matter how long out it is.
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