ApyGuy: How To Maximize Your Savings & Earnings

12 Alternatives To Bank CDs and Savings Accounts

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Every investor wants to earn a reasonable rate of return. 

Your rate of return can produce an income to pay for living expenses, or funds can be reinvested to increase your investment portfolio.

The current interest rate environment makes it difficult to earn a decent return on traditional investments.

Interest Rate Landscape Today

Interest rates have steadily declined since 1981. The interest rate on a 30-year fixed mortgage has declined from over 18% in September of ’81 to under 4% today.

As Bankrate notes, experts expect the Federal Reserve (Fed) to keep interest rates where they are in the year ahead. Low rates of inflation allow the Fed to keep interest rates lower for a longer period of time.

Low interest rates also mean low rates of return on certificates of deposits (CDs) and savings account balances. A 5-year certificate of deposit pays less than 3% at most banks, and shorter-term CDs pay even less. Savings accounts currently pay less than 2%.

Low rates of return may impact your monthly income, and your ability to grow your investment portfolio. If you’re interested in earning higher returns, consider these 12 alternatives to investing in bank CDs and savings accounts.

Reducing debt can generate an attractive rate of return.

Paying off High Interest Debt

You can earn a higher rate of return by paying off debt that carries a high rate of interest.

If the rate of interest you remove is higher than the rates available on CDs and saving accounts, you’re financially better off.

The average interest rate on credit card debt is over 21%, and interest rates on student loans average between 4.5% and 7.6%, depending on the type of loan.

Here’s a simple example, assuming that the investor pays off the highest interest rate debt first.

  • You pay off a $3,000 credit card balance with a 20% annual interest rate, saving you $600 interest expense. You now have $600 available to use toward another debt.
  • Next, you apply the $600 in saved credit card interest and $4,400 additional dollars to pay off $5,000 in student debt. This debit has a 6% annual interest rate, saving you $300 in interest. 
  • Finally, you apply the $300 in saved student loan interest and $1,700 additional dollars to pay off $2,000 in additional student debt. This debit has a 4.5% annual interest rate, saving you $90 in interest. 

The result? You invested $9,100 to pay down debt, and saved $990 in interest costs. Your return, in terms of interest costs eliminated, is over 10%. This is a much higher return than rates for CDs and savings accounts.

A growing number of investors are considering the returns from peer-to-peer lending.

Peer to Peer Lending

This form of lending provides an alternative to traditional bank loans, and offers a competitive rate of return to investors.

With peer-to-peer (P2P) lending, borrowers are connected with lenders through an online marketplace, with the P2P company serving as a facilitator.

The borrower doesn’t have to go through a lengthy loan approval process. The application process is simplified, and decisions are made quickly. The lender earns a return, based on a share of the interest rate charged to the borrower.

Companies such as Upstart and Funding Circle facilitate personal and business loans. PriceWaterhouseCoopers estimates that the market could reach $150 billion or higher by 2025.

As an example, Upstart states that the average 3-year loan has an annual percentage rate of 20%, and that over 478,000 loans have been originated on the site. P2P lenders can earn annual returns from 6 to 10%. 

These are unsecured loans, and there is a risk of default by a borrower. Upstart’s default rate is between 4% and 9%. Fortunately, you can spread your risk by investing a small dollar amount in a number of different loans.

Both the SEC and state entities regulate P2P lenders.

ETF And Dividend Stocks

Over the long term, common stocks have offered higher returns than CD and savings accounts.

One way to measure the average return on common stocks is to use the Standard and Poor’s (S&P) 500 Index. This is an index that tracks the investment performance of 500 large company stocks.

The average annual return for the index from 1957 through 2018 is roughly 8% (7.96%). While the average return is higher, the year-to-year volatility creates risk for investors. The index generated a 34% increase in 1995, and a 38% decline in 2008. 

Common stocks can be a successful investment for individuals who hold a portfolio of stocks over the long term. 

An exchange-traded fund (ETF) is a portfolio of stocks that tracks the performance of an underlying index, such as the S&P 500 Index. ETFs are listed on exchanges, and their shares are traded each business day. Purchasing an ETF is an inexpensive way to invest in a diversified portfolio of stocks.

You can reduce stock market volatility by purchasing dividend stocks. These stocks pay a high dividend, as compared to the overall stock market. Typically, high-dividend stocks represent companies that are well established, and produce consistent profits.

Assuming dividend reinvestment, high-dividend stocks posted compound annual returns of 11.7% between 1986 and 2016. According to Ned Davis Research, dividend stocks posted an average annual return of 10.07% between 1972 and 2013.

Stock investors are exposed to volatility, as explained earlier. By reinvesting a high dollar amount of dividends, investors can benefit from compounding interest, or the ability to earn a return on prior dividend payments.

Compounding interest increases returns, and reduces the impact of stock price declines on the annual rate of return. ETFs and high-dividend stocks are appropriate for investors who are willing to take a moderate level of risk to earn higher returns.

Corporate, Municipal, and Government Bonds

A bond is a debt instrument that pays an investor a fixed interest rate each year, and returns the original (principal) amount when the bond reaches maturity. Many investors use bonds to earn a predictable amount of income each year.

Most bonds receive a credit rating, based on their ability to make all required interest payments and repay the investor’s principal amount at maturity. 

A default means that the bond missed an interest payment, principal repayment, or both. Investors should consider the bond rating for every investment, in order to minimize the risk of a bond default. 

Standard and Poor’s and other institutions analyze bonds and provide a bond rating. 

Investors can purchase several types of bonds:

Corporate Bonds

Debt issued by corporations to raise capital. Companies that generate consistent profits and limit the total debt can make all required debt payments. These firms typically receive a higher bond rating than other businesses with inconsistent profits.

Municipal bonds

States, cities, and local governments issue municipal bonds. The bond may be secured by the taxing power of the municipality (general obligation bonds), or funded by a specific revenue source.

Government bonds

The US federal government issues Treasury bonds. These bonds are backed by the full faith and credit of the US, and have the highest bond rating for creditworthiness.

Barclay’s Capital reports that bonds earned an average annual return of 4.3% from 1915 to 2014. Keep in mind, however, that inflation reduces the purchasing power of the income paid on a bond. Inflation averaged 3.2% during the same time period, meaning that the average “real” return was (4.3% – 3.2%), or 1.1%

CD and savings account investors are also subject to inflation and reduced purchasing power. So, it’s useful to compare CD and savings rates to the 4.3% annual return on bonds.

Real Estate Investing, REITS

Investors can diversify their investment portfolios and earn competitive rates of return by investing in real estate. 

Investopedia explains that the average 20-year return in commercial real estate is 9.5%, while residential real estate averages 10.6%.

  • Purchasing individual properties is complicated, and carries several forms of risk. You need to understand current prices in the market, so that you can negotiate a reasonable purchase price. 
  • You’ll need an expert who can ensure that the title of the property is legally transferred to you. 
  • If you want to build or make changes to an existing structure, you’ll need to get permits and follow local building code regulations.

Real estate investment trusts (REITS) allow you to invest in a portfolio of securities, and avoid the challenges of purchasing individual properties.

Like stocks and mutual funds, REITS are securities, and they trade on exchanges. You can invest in a diversified portfolio of properties, and invest in property management companies.

Kiplinger lists SITE Centers (shopping centers) and Boston Properties (commercial property) as two of the best REITs for investors.

The average 20-year return for a REIT is 11.8%.

Rewards Checking

If you’ve used credit cards and received rewards, you might consider a rewards checking account. You can potentially earn high interest rates, cash back rewards, and even signup bonuses.

Reward checking interest rates may be higher than what you’re currently earning in a checking or savings account. These accounts offer free checking, and many will refund ATM fees.

There are some drawbacks to rewards checking accounts, however.

  • Debit card usage: The most common requirement is that the owner must use the account debit card a minimum number of times each month (10 times is typical). If you don’t meet the usage requirement, you’ll earn less interest.
  • Types of debit card purchases: Some accounts may also require debit card purchases for a minimum dollar amount. You may not be able to meet the minimum usage requirement with a number of small purchases.
  • Balance caps: The bank may cap the dollar amount that you can use to earn the higher interest rate. Read the agreement details carefully to determine if there is a cap.

If you’re self-disciplined and monitor your debit card usage and balance, you can earn a higher return with rewards checking.

Foreign Currency CDs

These CDs can offer a higher rate of return, but investors are exposed to currency risk while their deposits are active.

When the investor converts back to dollars, the owner is exposed to the currency fluctuation that took place during the tenure of his/her deposit. If the US dollar’s value has strengthened compared to the other currency, the investor will get back fewer dollars when the CD matures. Conversely, if the US dollar has weakened compared to the other currency, the investor will get back more dollars when the CD matures.

Many traditional banks do not offer these products. TIAA Bank (formerly EverBank) is the most well known institution serving the space. They have two products – WorldCurrency CDs and WorldCurrency Baskets. You can choose from a number of currencies in both developed and emerging countries. The World Currency Baskets let you diversify into a number of currencies. You can read more in our rundown of foreign currency CD’s.

Home Improvements / Rent Property as Airbnb

Earn a rate of return on an asset that you already own.

Upgrade your home- particularly if you own a second home- and rent your property as an Airbnb.

Airbnb is an online marketplace that connects people who want to rent out their homes with people who are looking for accommodations in that locale. It currently covers more than 81,000 cities and 191 countries worldwide.

The company is the largest home-sharing platform in the U.S., with more than two million people on average booked every night into its listings worldwide.

Many people earn income from Airbnb, particularly if they upgrade their homes to make them more attractive to a potential renter. You can make small improvements in your kitchen, or a spare bedroom, and post photos and a video of your home on Airbnb.

The risk for Airbnb hosts is that a renter may do damage to your home. However, Airbnb’s Host Guarantee program provides protection for up to $1,000,000 in damages to covered property in the rare event of guest damage, in eligible countries.

If you travel or have a second home, you can use the time away as an opportunity to rent your home and earn income.

Use start-ups like AirDNA to estimate how much your rental property could generate in Airbnb income. Research average nightly rates plus expected vacancy rates to get an estimated monthly income report for your property.

Diversified Portfolio of Growth Stocks

Growth stocks offer a potentially higher rate of return than the broad market, with a higher level of risk. A growth mutual fund may be an option for a small percentage of your investment portfolio.

The Motley Fool explains that: “Growth stocks prioritize going from small, up-and-coming businesses to leaders in their respective industries as quickly as possible. Early on, growth stocks tend to concentrate on building up their revenue, often at the cost of delaying profitability until a future date. After a period of time, growth stocks start focusing more on maximizing profit.”

Growth stocks may not produce consistent earnings, and these firms typically reinvest available earnings into the company. In most cases, growth stocks do not pay a dividend, which means that your return is generated from an increase in the stock price.

As mentioned earlier, average annual return for the S&P 500 stocks from 1957 through 2018 is roughly 8% (7.96%). While the average return is higher, the year-to-year volatility creates risk for investors. 

You can purchase a growth mutual fund that invests in dozens (or hundreds) of stocks. If a particular growth stock declines sharply in price, the impact on your portfolio is minimized.

Add Capital To Existing Business

Consider investing in yourself.

If you own and operate a successful business, you can invest additional capital. Maybe you use the added capital to fund a marketing campaign for a new product, or to buy inventory to meet seasonal demand.

A company that generates a 10% profit can use additional capital and generate a similar return. You know your business better than anyone else, and you can use the invested capital where your firm needs it the most.

Home Addition To Increase Value

If the owner has a smaller home in a highly desirable location and is considering a home sale, an addition could sharply increase the potential sale price of the home. The gain on sale may be far more than the cost of the home addition.

As mentioned above, the average annual return on residential real estate is 10.6%.  However, making right changes to your home can differentiate your property from others in the neighborhood. Talk with a realtor about an addition or remodeling project, and take advantage of your home’s location.

Private Equity Investing

If you have a high net worth, and can keep dollars invested for at least 4-5 years, private equity investing is an option for you.

Private equity funds invest in private companies that do not trade on an exchange. The fund managers work to make changes and increase the sales and profits of the purchased company. In most cases, the private equity fund attempts to sell the company for a gain after 6-10 years.

You must meet net worth minimums and other requirements before you can invest in a private equity fund. The fund also requires investors to keep funds invested for 4-5 years, so that the funds can be used to improve the company’s performance.

Private equity investing offers higher returns, with a higher level of risk. In some cases, the purchased businesses cannot be sold for a gain, or generate a loss for the fund.

Investing Options to Avoid

If you’re looking for higher rates of return, avoid these three types of investments.

Annuities

An annuity is an investment that pays a fixed stream of payments to an investor over time. Retirees use annuities that pay an income for a fixed number of years, or for the remaining life of the investor. Variable annuities allow purchasers to invest in stock and bond portfolios.

Annuities are complex, and the fees can be expensive. Many annuity investors do not understand the investment, and the fees charged reduce the rate of return.

Stock Options

Options are an investment tool that allows the buyer to speculate on the increase or decrease in the future price of a stock. Option prices are highly volatile, and some options expose the investor to an unlimited amount of risk. 

Commodity Trading

Commodities are materials or agricultural products that trade on exchanges. Commodities can change rapidly in price, based on weather, crop production, and world events. Like stock options, this investment exposes the investor to a large level of risk.

Next Steps

Talk with a financial advisor, and do your homework. Consider the potential risks and rewards for each investment alternative. If you diversify your investments, you can earn a higher return than rates on Bank CDs and savings accounts.

Foreign Currency CD’s – Are They Worth It?

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If you’re completely dismayed with the current interest rate environment as a saver then you may be considering foreign currency CD’s as a potential alternative. Perhaps with the hope that another country might have a more favorable interest rate landscape than our own.

While you’d be correct to assume that other countries have better savings rates, you may be surprised to know that foreign deposits inherently carry quite a bit of risk.

Additionally, for retail investors, we would strongly recommend consulting with a certified financial advisor prior to opening any foreign currency CD. Unless one has a thorough understanding of government and monetary policy in the desired country of investment, outside advice by a certified professional should be sought.

In this article we’ll discuss the benefits and drawbacks of investing in foreign currency CD’s and where you can open them.

Understanding Foreign Currency CD’s

In many ways a foreign currency CD is just as simple and straight forward as a traditional CD you’d open at your local bank or credit union. The opening process, minimum deposit requirements, potential early withdrawal fees are usually all fairly standard.

The major difference with these products – and where the inherent risk lies – is with the currency fluctuation while the deposit is active.

Any weakening of the foreign currency (relative to the US dollar) while your money is tied up has the potential to eat away your interest and even principal. Conversely, any major strengthening of the foreign currency (relative to the US dollar) could amplify your earnings.

Additional Account Details:

Foreign Currency CD’s generally come with similar early withdrawal fees and minimum deposit requirements, however, their durations tend to be shorter than standard US-based certificates of deposit. Maturities on foreign currency CD’s usually range from 3 to 12 months.

How To Open A Foreign Currency CD

Opening a foreign currency CD is not easy and only a small handful of institutions even sell the products. It’s possible to purchase foreign currency deposits by reaching out to overseas banks, however you wouldn’t be eligible for FDIC insurance in these cases.

The most notable institution in the US offering foreign currency CD’s with FDIC insurance is TIAA Bank (formerly Everbank). They require a minimum of $10,000 to open a WorldCurrency CD and take as much as 1% on currency conversion.

TIAA Bank’s WorldCurrency CD

TIAA Bank’s most popular foreign currency CD product is what they refer to as their “WorldCurrency CD.” These products come with short durations (3 – 12 months) and require a minimum of $10,000 to open. They are IRA eligible and are FDIC-insured against bank insolvency but not currency fluctuations.

When selecting a WorldCurrency CD you can filter between two groups – major currencies and emerging currencies.

TIAA Bank’s Major Currencies:

Image credit: TIAABank.com

As you might assume, the ‘major currencies’ feature more economically stable currencies while the ’emerging currencies’ (see below) feature emerging economies with more volatility.

Major currencies don’t often come with major advantages either. Savings rates in these countries aren’t always higher than the US either. For example, Hong Kong closed out 2019 with savings rates near zero and in August of last year a Danish bank launched a savings account with 0.6% negative interest rate for millionaires. So don’t assume you’ll get a stellar rate with minimal currency fluctuation risk.

TIAA Bank’s Emerging Currencies:

Image credit: TIAABank.com

The ’emerging currencies’ group features a riskier set of currencies.

While many banks in these countries offer attractive deposit rates, their country’s currency will always carry a high degree of risk against the US dollar.

Just to give you an idea of what kind of rates you could potentially lock-in, the current Mexican interest rate Banxico (base rate) is 7.250%. That said, the price of the Mexican Peso relative to the US dollar also fluctuated over 8% in 2019.

WorldCurrency CD Baskets

TIAA Bank’s “World Currency CD Baskets” are perhaps the most innovative set of foreign currency CD products on the market. These products are designed specifically to diversify currency and deposit holdings to offset risk.

They divide up currencies by three criteria:

  • Commodity Rich – The nations whose currencies comprise these baskets may benefit from increased world demand for their tremendous natural resources.
Image credit: TIAABank.com
  • Economy Driven – The nations whose currencies comprise these baskets may benefit because of sound economic strategies that help drive their monetary strength.
Image credit: TIAABank.com
  • Geographically Inspired – The nations whose currencies comprise these baskets may benefit from certain regional strengths and geopolitical strategies.
Image credit: TIAABank.com

How Can You Lose Money With Foreign Currency CD’s

What is the largest risk to your foreign currency CD? A strengthening US dollar.

Consider the following:

You decide to purchase a 6 month CD for $10,000 in Indian Rupee’s because it is currently paying a generous 5% APY.

To open this CD you first need to exchange your $10,000 US dollars into Indian Rupee’s.

The current exchange rate at the start of your deposit term is $1 US dollar for 70 Indian Rupees. Therefor your $10,000 USD becomes 700,000 Indian Rupees.

After you’ve converted your currency, you place your 700k Rupees into your 5% certificate of deposit.

Ok, now during the 6 month period in which your CD was open, let’s assume the US dollar strengthened against the Rupee so that $1.00 USD now equalled 75 Indian Rupees.

Let’s see what you’re left with…

First, let’s multiply your starting position (700,000 Indian Rupees) by your guaranteed interest rate of 5%. So, 700,000 x 1.05 = 735,000 Indian Rupees – a gain of 35,000 Rupees.

Second, (and before we celebrate) let’s convert your Rupees back into US dollars so we can return those funds to your domestic bank account.

735,000/75 (75 Indian Rupees now equals $1 USD in our scenario) = $9,800 US dollars.

Ouch! You just lost $200 on your 6 month CD that paid an APY of 5.0%.

Final Thoughts

We know that it is easy to be frustrated with the current savings environment, but before you look outside the US for more favorable rates, be sure you fully understand the risks associated with foreign currencies CD’s.

While it’s true banks in other countries can offer more favorable savings rates than our own domestic banks, a strengthening US dollar against the currency you’re temporarily invested in can negate your earnings and even principal.

Retail investors should always consult with a financial advisor before embarking on their own in foreign currency trading or when opening a deposit. Having a strong understanding of complicated government policies and scrutinizing a country’s monetary policies are a must before opening a deposit in any foreign country.

CFG Bank Money Market: 2.15% APY + 2.20% CD’s

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CFG Bank, a quaint bank based out of Maryland, is currently offering one of the top APY’s for a high yield money market account anywhere in the country.

Now available nationwide, First Foundation Bank is offering an incredible 2.15% APY on sums greater than $25,000 placed in their high yield money market account. They also offer a very respectable 2.0% APY on sums between $1,000 and $24,999.99.

The account can be opened online. To start the application process click on the “apply for an account link” in the top right. From there you will be prompted to complete a a series of steps to open the account. CFG Bank utilizes Fiserv technologies so while it will appear you’re completing the application on CFG Bank’s website, you’re actually on Fiserv servers for enhanced security and protection.

Learn more about CFG Bank and their generous high yield money market account and CD offers below.

Who is CFG Bank?

CFG Bank is a medium sized bank based out of Lutherville, Maryland that was originally established in 1997. It controls assets of just under $700 million and has roughly $500 million in consumer deposits making it the 11th largest bank in Maryland and the 743rd largest bank in the country according to DepositAccounts. It is a brick and mortar bank with just two locations – Lutherville and Baltimore. They offer online banking, bill pay and have mobile apps available for download, however, they lack some standard online features you’d expect from a more modern bank – most notably real time customer service via a live chat on their website or mobile apps.

Despite being behind the times perhaps on the technology side, CFG Bank gets an outstanding rating from the IDC of 300/300. This is quite significant as the IDC is the standard in rating financial institutions. You can read more about them here.

2.15% APY High Yield Money Market Account Details

CFG Bank’s online savings account yield of 2.15% APY makes it one of the most noteworthy FDIC-insured savings vehicles on the market today – slightly beating out First Foundation Bank’s online savings account yield of 2.0% that we covered earlier this week. But before you open the account make sure you know exactly what you’re getting and what’s expected of you to earn the advertised APY.

Account Details Below:

Minimum Balance Requirements? $25,000 to earn the advertised rate of 2.15% APY. You will earn 2.05% APY on balances between $1,000 and $24,999.99.

Any fees to worry about? There are no monthly monthly maintenance fees or early withdrawal fees associated with the high yield money market account.

Availability? Nationwide and can be opened online through their Fiserv application process.

Credit Inquiry? None have been noted.

Variable Rate or Fixed? This is a variable interest rate and may change at anytime.

Check Writing? No, there is no check writing allowed from this account.

Transfer, Withdrawal and Account Activity Limitations? You are allowed just 6 transfers per month, but can make an unlimited number of withdrawals if you’re willing and able to show up in person at one of their two branches in Maryland. Other restrictions include a daily transfer limit of $5,000 and a monthly transfer cap at $30,000 in a 30-day rolling period.

High Yield Money Market Account Features

Outside of the outstanding rate, you’ll be hard pressed to find many exciting features with this account.

They have very basic online banking and bill pay features as well as native apps for both the App Store and Google Play.

Once you’ve opened the account, transferred funds and enrolled in online banking you may download their mobile app to do the following:

  • Pay bills online. Transfer money between accounts and pay your bills online.
  • Monitor activity. Check your account balances and review recent transactions.
  • Be stress free banking with multiple layers of security. Security is a priority at CFG Bank as you’ll quickly learn by speaking with any representative. The mobile apps uses 128-bit Secure Socket Layer (SSL).

CFG Bank’s Online CD Rates

Along with one of the highest yielding money market accounts in the country, CFB offers some very respectable online CD’s as well.

They have 3 online deposit products with terms of 12 months, 18 months and 60 months. The rates don’t increase sizably with added durations so we’d recommend the 12 month option.

You can see the rates, APY’s and minimum deposit requirements for these three offers below:

Final Thoughts

If you are looking to plop more than $25,000 into a high interest, FDIC-insured product, and don’t want to lock the funds down for an extended period of time, then the high yield money market account by CFG Bank is one of the best deals around for you.

Keep in mind though, that the online banking and mobile app features are relatively lackluster. You’ll also have other notable restrictions such as the inability to write checks, so we’d suggest not using this money market account as a primary account for everyday expenses.

Their certificates of deposit are also yielding substantial returns compared to the current national average, however, you can likely get a similar APY with banks that don’t require so much effort in opening an account.

First Foundation Bank Online Savings Account: 2.0% APY!

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First Foundation Bank is offering one of the best APY’s for an online savings account anywhere in the country currently.

Now available nationwide, First Foundation Bank is offering a whopping 2.00% APY on all new money placed in their online savings account product.

Learn more about First Foundation Bank and their generous online savings account below.

Who is First Foundation Bank?

First Foundation Bank was originally founded back in 1990 by Rick Keller and his team at the Keller Group to provide wealth management services to individuals and businesses around the Orange County area in California. They differentiated themselves by always taking a fiduciary standard approach to investing their clients’ wealth. Industry jargon refers to this as the “fee only” approach where wealth managers take only a flat fee regardless of how well they perform on their client’s behalf.

In 2008 they officially begun operating under First Foundation Bank and expanded their product line to include traditional banking products as well as trust services, legacy planning, consulting, and insurance services.

2.0% APY Online Savings Account Details

First Foundation Bank’s online savings account yield of 2.0% APY makes it one of the most noteworthy FDIC-insured savings vehicles on the market today. But before you open the account make sure you know exactly what you’re getting and what’s expected of you to earn the advertised APY.

Account Details Below:

Minimum Balance Requirements? As long as you maintain a balance of at least $1,000 you will earn 2.0% APY on the entire sum. If your account drops below $1000 you will earn just 1.0% on the amount between $0.01 and $999.

Any fees to worry about? There are no monthly monthly maintenance fees or minimum balance requirements. That said, if for whatever reason you need to withdrawal your money and close this account within 90 days of opening it, a $20 fee will be assessed. Also, if you plan on making more than 6 transfers per month please note that a $20 fee will be imposed on the 7th transfer and on each subsequent transfer within the month.

Availability? Nationwide and can be opened online. If you’d prefer to stop by a branch you’ll only find them in California, Hawaii and Nevada. Find a branch here. You can also give them a call at 1-888-405-4332.

Credit Inquiry? None. Security questions will be generated from public databases though to confirm your identity.

Variable Rate or Fixed? This is a variable interest rate and may change at anytime.

Additional Account Features

You can expect all the standard bells and whistles in terms of account features.

If this will be one of your primary accounts you’ll want to familiarize yourself with their mobile banking app. You can download this for free on the App Store or through Google Play.

Once you’ve opened the account and downloaded the app you can do the following:

  • Track your account activity. Access all your account information in one central location. See your transactions, balances, statements and check images.
  • Pay bills online. Transfer funds (6 external transfers per month), send person to person payments, pay your bills, deposit checks and more.
  • Send money to friends and family. Unlimited transfers to other First Foundation Bank accounts, plus the ability to send externally (6 free external transfers per month).
  • Stress free banking with multiple layers of security. First Foundation Bank utilizes multiple levels of authentication security so you can bank with confidence.

Final Thoughts

If you have more than $1,000 and are looking for a high yield online savings account to plop those funds into, then this product by First Foundation Bank is one of the best options available anywhere.

The interest just beats the projected rate of inflation for 2020 (which pegs the number at 1.90%) thus protecting your buying power.

However, if you feel like maintaining a balance of $1k may be an issue, we’d suggest shopping around for other high yield accounts with $0 minimum balance requirements.

Also, if there is a possibility you will need to close the account within 90 days of opening it, we’d suggest a savings account with no early withdrawal fees.

Comparing CDs and Annuities in 2020

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One of the best things you can do for yourself in the year 2020 is resolve to be a more conscious investor, and because of this, it is important to seriously consider all possible investment options you currently have available.

If you are trying to construct a conservative financial portfolio, two options that probably quickly come to mind are Certificates of Deposit (CDs) and annuities. Both of these options will guarantee you to earn a small amount of interest over time, and both of these options are considered to be quite safe.

However, even though both of these options are on the “safe side” of the investment spectrum, because you only have so much money you can possibly invest, you are going to want to compare and contrast them carefully.

Some financial advisors will universally advocate for investing in CDs and others will advocate for investing in annuities. But the fact of the matter remains the investment that is right for you is going to depend on your specific circumstances.

What are the differences between CDs and annuities?

A Certificate of Deposit is quite similar to a bond (in fact, they are commonly referred to as bonds in the UK) in the sense that you are willingly surrendering cash in the present in order to receive marginally more cash in the future. Most CDs are for 6-month, 1-year, or 5-year terms and will usually provide you with less than 2% APY in interest. One of the main criticisms of CDs is that for an investment that requires you to lose access to your money (and will penalize you if withdraw before they are due), the return on investment is relatively low. Still, for someone who is looking for a low-risk way to store money they will not be using for a while, investing in CDs can be a viable option.

An annuity is something that will provide you with consistent future payments made at regular intervals. There are many different kinds of annuities including pension payments, life insurance plans, and many others. Typically, an annuity will require you to make a lump-sum payment up front (or over time) and the benefits of the annuity will be realized in the future. An example of an annuity might involve you paying $1,000 upfront today in order to receive $150 per year over the course of the next ten years. Though—in this arbitrary example—the total cost of this annuity would be only $1,000 and the total benefits of this annuity would be $1,500, because money has an intrinsic time value, it can be difficult to determine if you are actually getting a good deal.

While both CDs and annuities are designed so the costs are upfront and the benefits are in the future, the main difference between these two financial assets are the way in which their benefits are distributed. While the benefits of a CD will be distributed all at once, the benefits of an annuity will be gradually realized over time.

When should I invest in CDs? When should I invest in annuities?

Whether your money would be best spent on CDs or best spent on annuities is going to depend on your current situation and personal financial goals. The risk of default regarding both of these assets (especially when insured by the FDIC) is remarkably low, but should still be accounted for when comparing them together. The long-term reward for investing in annuities is usually much greater than the long-term reward for investing in CDs, though the amount of money you have to surrender up front in order to purchase an annuity may also be greater.

The question you ought to be asking yourself when investing in either of these products is how long can I go before I get my money back?

When compared to annuities, most CDs have relatively short lifespans. Though you can find 10-year CDs on the market, the vast majority of available CDs will expire in five years or less. Annuities, on the other hand, take much longer to mature. Some types of annuities—especially pension plans and life insurance—may not begin to pay out for decades down the line. The real difference between these two types of assets is the tremendous amount of variance that exists when it comes to timing.

What might the year 2018 have in store for my financial portfolio?

There are a lot of things that are still yet to be known about the year 2020, and all future forecasting will inevitably be speculative. However, even with this being said, there are still a few conservative predictions that a potential investor could possibly make. Because CDs have relatively flat-lined over the past few years, a conservative investor can anticipate these assets to still typically provide less than 2% APY in return. Though it is certainly possible that deregulation may lead to an increased demand for cash by financial institutions (and thus increase future rates), it is safer to assume that these changes will be marginal.

Annuities will also likely continue performing as they have been in recent years while experiencing only marginal adjustments. Similarly, because the actions of the Federal Reserve are relatively limited in today’s current economic climate, the current annual inflation rate (about 2%) can be expected to remain close to the same as it has been.

When it comes to planning your 2020 financial portfolio—and deciding whether to invest in CDs or annuities—the same principles that have always applied to these assets will continue to apply.

If you are looking for somewhere safe to store your excess cash for the short-run, investing in a CD may be in your best interest. If you are willing to depart with more money in the status quo in order to receive a consistent source of income in the future, then investing in annuities may be something you want to begin looking into.

Popular Alternatives to Bank CDs

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There are a number of different reasons you might consider investing in CDs. CDs (Certificates of Deposit) typically yield greater returns than most checking accounts, and—because they are insured by the FDIC—they are also generally considered to be relatively safe investments.

But, as is the case with most financial assets, the benefits of investing in CDs are not without drawbacks. Though the interest rates may be higher than a typical checking account, they are still usually much lower than inflation. Furthermore, the penalties associated with early withdrawal can often make it seem as if your money is “locked away” for an extended period of time.

CDs aren’t necessarily a bad investment and, in fact, they can be quite useful for diversifying your portfolio. But because there are a lot of investors out there who are looking for something that offers a greater return on investment, it is important to consider some of the most accessible alternatives.

#1 Treasury Inflation Protected Securities (TIPS)

The first, and perhaps most obvious, alternative to investing in CDs is investing in Treasury Inflation Protected Securities. TIPS are distinguished by the fact that their value actually adjusts with inflation (as measured by the Consumer Price Index). CDs, on the other hand, hold the constant risk that changes in overall prices will end up making them a poor initial investment.

Even with this said, both CDs and TIPS are considered to be extremely low-risk investments. Both sorts of assets are backed by the Federal Government, either directly or through the FDIC. When the two assets are compared together, TIPS offer marginally higher interest rates and are also much easier to get rid of before their expiration date.

The primary risk of TIPS is that if there happens to be negative inflation (and the CPI decreases), then the value of TIPS will actually be adjusted downward. If you believe that negative inflation is a likely possibility over the lifespan of a given TIPS, then you may be better off investing your money elsewhere. However, given the recent actions of the Federal Reserve and overall trends in the economy, negative inflation is something that seems very unlikely to occur in the United States’ foreseeable future.

#2 Dividend Paying Stocks

The good thing about the stock market is that as a comprehensive whole it typically offers a much greater return on investment than even the best CDs you can possibly find. The bad thing about the stock market, however, is that you are risking losing at least a portion of your principle investment.

If you invest $100 in a CD that yields 1% per year, then one year from now, your $100 principle investment will have grown to be worth $101. If you invest $100 in even a fairly stable stock, then one year from now, that $100 could be worth $90, $110, or—frankly—a seemingly unlimited number of possible values.

The future value of a stock can be incredibly difficult to forecast. Though the stock market is more rewarding, it is certainly much riskier than the CD market. But what can be realistically forecasted are the dividends your stock will be paying over time.

Many of America’s largest corporations regularly pay dividends of 2-5%. This means that no matter your stock is worth in the future, a portion of its value will be paid to you (usually every 3 months) in cash.

Investing in blue-chip, dividend paying stocks can protect you from the inevitable highs and lows of the stock market. Even if you have lost value on your principle investment, the dividends will still be paying you much more than an interest accumulated by a CD would have.

#3 Eliminating debt

If you are currently holding onto any sort of debt—student loans, a mortgage, credit card debt, etc.—then it is very likely that the interest you are currently accumulating on your debt is greater than the interest you could be earning by investing in CDs. Because of this, paying down your current debt is something that ought to be made your top priority.

If you currently have $10,000 worth of debt (growing at 5% per year) and $10,000 worth of assets, investing in a CD that grows at any rate less than 5% per year will inevitably put you at a worse financial position one year from now. In fact, in the hypothetical case of investing in a CD with a 1% APY, in this scenario, you would functionally be losing $400.

Though there are obviously exceptions to the rule, in general, debt is something that accumulates quickly and interest on CDs is something that accumulate slowly. Because you will almost never find yourself in a situation where you can earn more from a CD than you will be owing in terms of debt, investing in CDs is something that debtholders should—at the very least—be willing to save for later.

#4 Various retirement assets

Retirement is something that most financial advisors will tell you that you ought to start preparing for as soon as you feasibly can. Because CDs already require you to store your money away for an extended period of time, you may want to look somewhere where doing so can provide you with a greater rate of return.

Investing in a 401 (k), Whole Life Insurance, IRA, or Roth IRA—especially if you are able to have your employer contribute—can each offer a much greater return than you would be able to achieve by simply investing in CDs.

What all of these assets have in common is that you will end up willingly surrendering some cash today in order to receive some seemingly greater benefit in the future. But in the case of the “retirement” assets mentioned above, not only will you typically earn a greater return on investment than you would with a CD, but you will also be able to earn some indirect benefits through various tax incentives.

At the end of the day, a Certificate of Deposit is something that can be used to securely store your money for a given period of time, and also offer you a small amount of interest. The risks of investing in CDs are relatively low. But if you are hoping to have your financial portfolio securely grow in some way, any of the options mentioned in this article may be a better option for you.