Rates on all things financial are heading up. This is good news for some and bad news for others. Savings rates on high interest savings and money market accounts are up after falling to multi-year lows. However on the flip side, new home buyers or those looking to refinance are seeing mortgage interest rates rise from historic lows. On Wednesday the WSJ reported that rates on 30-year fixed-rate mortgages climbed to 5.79%, up from 5% two weeks ago, according to HSH Associates. That jump will cut roughly in half the number of borrowers with an incentive to refinance, according to FTN Financial. Refinance activity at J.P. Morgan Chase & Co. is already “really down” since rates began rising, a spokesman says. A rate of 4.75% “seemed to be the switch” that turned on refinance activity, he says. Now, rates are a full percentage point higher.
The top high-yield bank savings accounts are paying interest rates of around 2%, compared to a 0.5% national average. Leading the pack is a new offering from Capital One (formerly ING Direct). I recently signed up for a free account – via a promotion where no minimum deposit/balance was required. There offering is quite standard relative to the leading providers but the feature I liked best was that they calculate and compound interest daily, rather than monthly or quarterly like some other big banks. The more often interest is compounded, the faster it grows. They also have the leading Certificate of Deposit (CD) offering which is good for longer term savers that like to use laddering.
If you want to park some of your cash, then high yield saving accounts are a better deal right now than money market funds (which are offering a miserly 0.16% on average) and may even be more secure since bank deposits are insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor, a limit recently extended to 2013. While money-market funds are generally very safe, the insurance program set up after the financial crisis covers only investments that were there as of Sept. 19, 2008 and is set to expire this September.
Finding the best saving interest rates. I wrote about some other good high yield savings accounts in a previous post, but if you are looking around do some research via bankrate.com (for savings accounts) or Morningstar.com to compare various money market fund offerings. Just take care to read the fine print to avoid teaser rates or monthly fees. Also, be sure the account is FDIC-insured and that you’re comfortable with any minimum balance required. Several on-line banks tend to offer better-than-average rates. But you must be willing to do your banking online or by mail and keep in mind that transfers between banks can take two to three business days.
Mortgage Rates – Where are they headed?
Unfortunately the answer is up. The underlying cause isn’t hard to find. Rising government debts, and burgeoning hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans. Be aware this rate hike – to 5.25%, from 4.75% recently – can add quite a bit to your expenses. It will cost an extra $50 a month for someone buying a typical $200,000 residence with an 80% loan.
So if you are on the fence to refinance or purchase a home, it is best to lock in a lower rate now. I’ll talk about how I was able to get 4.5% on my 30 yr conventional loan in a future post (subscribe for free updates), but the best (and most obvious) tip is to always shop around before you commit to any financial product or service. You will be surprised at how much banks and brokers are willing to negotiate. Particularly if you have a good FICO credit score!