*This blog post is my personal opinion only and contains affiliate/referral links.
This is the latest interest rate that my online high yield savings account from American Express is earning monthly. The latest cutback is from a June 25 2020 email. A year ago i would have earned 1.5 or higher.
And we are not talking about major banks here. Savings account interest rate from B of A is currently near zero (0.1%- 0.4%). Wells Fargo and the others are not that far behind the very low interest rate bandwagon too.
1% is still higher than the average banks, but as you can see the competition for a profitable rate is also in the forefront of other money institutions. According to Bankrate.com, Ally Bank is 1.5% and Marcus by Goldman Sachs is 1.10%, just to name two in the pool of online savings account competition.
The range of cutback is widespread. Mortgage rates, CD rates, and even credit card rates are lower because The Federal Reserve is adjusting to the economic impact of the Covid-19 situation. With millions still unemployed and many still cash-strapped, not a lot are borrowing and spending, even though loans are low. Some economist are forecasting that these near zero interest rates may even extend to two years to give the economy more time to recover to a healthy fiscal firm.
So what does it mean to those that have something stashed in their savings account right now? It means that if they have good credit they can borrow and take advantage of really good loans. However, it may be harder and riskier for those with bad credit and no savings to get a loan at the moment.
While the government is encouraging us to spend right now, i think many are still favoring to let their monies sit and wait it out till the economy is back on its feet and their job stability is in place. This is understandable because most spending goes to basic necessities and most savings are kept for emergency fund.
Is 1% interest rate for an online savings account worth it?
I’ve been pondering about this and decided i need to move some of my savings to a more higher rate of return vehicle. I will still be leaving some of my savings for my liquid emergency fund but i’ll also use some to add to my dividend portfolio.
The timing couldn’t be more appealing when the Stock Market had another dip last Friday (June 26 2020). The whole week was down considerably for two of the three major indices and i only have to look and check the target price of my stock watch list to buy for dividend income. I eventually bought $T and $PFE.
Having a watch list is a ready cheat sheet if you are ever going to invest in the foreseeable future. I have my eye on $T for a while now and i honestly was put off by it’s debt, but after a recent news that it accelerated it’s debt payment, i was convinced that it is a buy for mid to long term, especially with it’s promised venture on 5G and the HBO market.
$PFE is purchase made for two reasons: 1) current share of $31.5 when i bought it is undervalued and 2) the fundamental financial strengths are there as it approaches 10th year of dividend increase. Health sector is also a good exposure to have when allocating stocks on any dividend portfolio.
Dividend yield is 7.00% and 4.70% respectively for $T and $PFE. Granting the yield will manifest as projected, the risk is high but the reward exceed the risk far greater. This is a calculated investment on my part and i know i can ride the risk of not earning 1% for far more multiples than that.
Thank you for reading.
Please let me know how you are managing your savings account right now.