What Bank Has the Best Interest Rates for Cash?
When Nanalyze started to grow in popularity several years back, we found ourselves in a unique position to help loads of people with no prior investment experience. This started taking form when we first warned (and continue to warn) investors to stay the heck away from over-the-counter (OTC) stocks. You will not get rich working from home 4 hours a week, and you will not get rich buying OTC stocks. On the other hand, you should spend some time learning about the merits of dividend growth investing, the usefulness of investing in robo-advisory offerings like Betterment, and that putting all your eggs in one basket by over-weighting a single stock is foolish. While this is all common sense advice, it turns out that we completely overestimated the sophistication of our millennial readers. A recent Bloomberg article states that 1 in 3 millennials prefer “cash for long-term investments”, and they’re actually horrible at it:
Turns out that living with your parents instead of renting is not a bad idea. It has given you lots of cash, and now you want something for it. Demanding something for nothing, so millennial, yet so brilliant. Who doesn’t want to receive maximum reward for minimum effort?
The Best Interest Rates for Cash
Now before we go down this rabbit hole, let’s clarify a few things here.
- When you give someone your cash to hold and they give you a “rate of return”, we are assuming that you can take the cash back from them at any time. That’s what we call a “savings interest rate”. You may hear about things called “CDs” or “Certificates of Deposit”. These vehicles require your money to be non-accessible for certain long periods of time – definitely not something for the ADHD generation.
- When you give someone cash, the interest rate they give you is based on the currency you give them. (We’ll show you a cool trick using this later.) We’re going to talk about U.S. greenbacks in this article because most of our readers hail from ‘Murica.
- The interest rate you receive on your savings is based on something called the “risk-free rate”. This represents the lowest risk investment you could possibly make with your dollars, but you already knew that because that’s why millennials are holding so much cash in the first place.
Being the millennial that you are, the first thing you might do to find “the best interest rate” would be to use a directory like Bankrate.com to find the best interest rates for your little fistful of dollars. Indeed, a search on Bankrate.com produces a list of 149 different banks you could give your hard earned dollars to. Rates range from +2.01% (Virtual Bank) to +.01% (Wells Fargo). Not all of these companies are equal because of something called systemic risk.
Not All Interest Rates are the Same
Just because some fancy sounding fintech company offers you great rates doesn’t mean that it won’t implode next month because the founder spent all your savings buying utility tokens for The Game’s latest cannabis venture. We call this “systemic risk“, and it’s best summarized as the likelihood the company you are giving your money to gives it back to you at a later date. Among the banks listed on Bankrate.com, the one with the best “rate to risk ratio” (at least based on size) appears to be CIT Bank.
They’re an established bank and the 45th largest in the United States. We can also vouch for their service having opened an account with them a while ago and we’re getting a +1.85% return on our measly savings as we write this. That’s pretty high, but relative to what?
Remember how we mentioned a “risk-free rate” earlier? That refers to the lowest risk investment you can possibly make, meaning the investment that’s least likely to give you zero dollars back. Simply said, it’s the least risky thing you could possibly do with your money. Since the basic notion in finance is that lower risk equals lower returns, we’re trying to maximize something that should be extremely low already. Turns out though, +1.85% is not low at all.
If you are a dividend investor, you might consider +3.0% decent. Consider that a quality dividend stock like J&J pays +2.7% per year right now and you can see how a risk-free +1.85% is a pretty decent return. Then consider that your savings interest is compounded daily and paid monthly. It’s certainly better than the nearly 19% of millennials who earn nothing on their cash. Of course, the more ambitious millennials out there may want to take this a step further and look south of the border.
Your Casa on the Mesa
Given the proximity of the U.S. to Mexico, it seems likely that many of you travel down there to all-inclusive resorts where you pretend to be immersed in a culture you’ll likely leave knowing little about. Then when you get older, you can buy a house in Puerto Vallerta alongside a bunch of other Americans, and then all go to restaurants together where they have English menus. In order to fund all these exotic adventures, you might consider buying some pesos.
Remember how earlier we talked about interest rates being different based on the currency being saved? Turns out that you can get a much higher return if you’re willing to hold Mexican Pesos. You don’t even need to ask your cousin Juan to sort you out, since you can actually do it yourself using Interactive Brokers. Just open an account, buy some Mexican pesos at spot rates, then watch the money pour in. Interactive Brokers currently pays +4.09% for any pesos you hold with them. We’ve used Interactive Brokers for years and think they’re the next best thing since sliced bread.
Before considering any sort of risky technology investment of the type you’re likely to read about here on Nanalyze, make sure your financial house is in order first. A “low risk” strategy like those on offer from robo-advisors like Betterment should be where most of your investment dollars are placed. If you’re like the 33% of millennials who see cash as their preferred investment, make sure you know what interest rates you’re getting. While the rest of us are socking away massive returns on our positions in tech stocks like Illumina and Nvidia, at least you know you’re money is in a safe space where nothing can hurt it.
If you have money sitting around doing nothing, why not stick in a high-yield savings account while you mull over the options? Opening an account with CIT Bank is quick and easy after which you'll be getting 2.45% on your money. That's not bad for something that will take you five minutes to do. We opened an account and are making money as we type this. Why don't you?