Early 2019 changes in the savings and no-penalty CD spaces

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At the end of 2018 I wrote an article that summarized the late 2018 developments in the no-penalty CD space and wrapped it up by wondering how those changes would trigger responses from competitors, particularly CIT which seemed to be lagging at that time.  Well, earlier this month, CIT did respond, but not with a change to its 11-month, no-penalty CD, which still sits at a 2.05% APY. Rather, continuing their trend of rate competition through their new Savings Builder product, CIT raised the APY from 2.25% to 2.45% for Savings Builder accounts with balances of $25K+ or with a lesser balance and a monthly deposit, thereby becoming the rate leader amongst nationally-available savings accounts.  (The previous rate leader was MySavingsDirect at 2.40%.)

Meanwhile, CIT’s competitors have continued their leapfrogging in the no-penalty CD arena.  Ally Bank was the last to leapfrog in 2018 by raising the rate on its 11-month, no-penalty CD in December to 2.30% for $25K+ deposits, surpassing Marcus’ 13-month, no-penalty CD offering 2.25%.  As one might expect, Marcus was the next to respond in the new year by raising the rate on their 13-month, no-penalty CD to 2.35% in early January. Marcus’ no-penalty offerings now all stand 20 basis points higher than when they debuted in late October of 2018:

  • 7-month CD currently yields 2.25%
  • 11-month CD currently yields 2.30%
  • 13-month CD currently yields 2.35%

At the same time, Marcus also leapfrogged Ally’s savings product with a 2.20% APY by raising their savings rate from 2.05% to 2.25%.

Our Analysis

The CME’s FedWatch Tool currently contains predictions for Fed meetings through January 29, 2020. For all meetings between now and then, the odds currently indicate that rates are a little more likely to rise than fall. The appeal of no-penalty CDs is that they offer the best of both worlds:  Liquid access to your funds if needed, coupled with a rate guarantee through a date certain.  However, with rates not projected to fall for the next 12 to 13 months, it’s fairly compelling to eschew the 13-month rate guarantee of 2.35% from the leading no-penalty CD from Marcus and opt for the extra 10 basis points offered by the leading savings product — CIT’s Savings Builder earning 2.45%. If AgFed Credit Union was currently offering their 30-month, no-penalty CD with the 2.40% rate offered this past summer, the decision would be more difficult.

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