Here's a quiet number on page B7 of the weekend Journal. The average five-year CD pays 1.83%. A few lines down, a bank and a credit union each pay 5.00% for the same five years. Both are federally insured. Both lock your money up the same way. The only difference is who went looking.
Bankrate's rate survey runs in the weekend paper. This week it shows the average money-market account paying 0.45%. The average five-year CD pays 1.83%, up a hair from 1.81% a week ago. Then it lists the best offers. Bread Savings pays 4.70%. KS StateBank pays 4.75%. E*TRADE pays 4.80%. Popular Direct and Quorum Federal Credit Union pay 5.00%. The paper isn't endorsing any of them, and neither are we. The point is the spread. The best rate is nearly three times the average, 5.00% against 1.83%.
Inflation is 3.7%. Your cash should know that.
The same paper prints September's inflation number on B8. Prices rose 3.7% from a year earlier. Core prices, which leave out food and energy, rose 2.6%. Money earning 0.45% loses to both. Money earning 1.83% loses to both. You'd need the top CD rates, or a Treasury bill, just to stay even. This week the 13-week bill sold at 4.095% and the 26-week at 4.220%. Those are backed by the government, and they hand your money back in a few months.
Banks can pay 0.45% because most of us never move the money. The Fed's own target rate is 3.75% to 4.00%. The prime rate banks charge their best borrowers is 7.00%. Borrowing costs did ease a touch this week. Freddie Mac's 30-year mortgage slipped to 7.32% from 7.40%. A year ago it was 6.19%. A 48-month new-car loan averages 7.05%. The gap between what a bank charges and what it pays is the whole business. You don't have to fund it.
Our read
Cash Flow (M5). This is the easiest fix in personal finance. It doesn't take a forecast. It takes a login. Our model books keep their safe money in short Treasury bills through SGOV, held at weight in 49 books. Four books use a government money-market fund (MJGXX) and two use BIL. Nothing added this week. Those bills pay close to the 4.095% auction rate, and the price barely moves. We'd rather own that than a five-year lock-up at 1.83%. A five-year CD at 5.00% can make sense if you're sure you won't need the money. Read the early-withdrawal penalty before you sign.
The one thing in your plan this touches is your emergency fund and any cash parked at the bank. The one check this week takes ten minutes. Pull up the statement and find the rate. If it starts with a zero, you're paying your bank to hold your money while prices climb 3.7%. Move it to a high-yield account, a T-bill fund, or a CD you've shopped. Bring the statement to the next review and we'll put a yearly rate check on the calendar. You fix a leak when the sky is clear, and this one is easy to find.