Goldman’s Online Bank Loses Its Advantage Over Bonds

The recent sell-off in short-term U.S. Treasuries has created an opportunity for savvy savers unseen in more than two years.

I’ve written before about so-called high-yield savings accounts, offered primarily by online institutions like Goldman Sachs Group Inc.’s consumer bank Marcus, Ally Bank, Barclays Plc and others. Historically, these vehicles and accompanying certificates of deposit have more or less tracked short-term Treasuries with a lag — they were slower to offer higher yields when the Federal Reserve was raising interest rates in 2017 and 2018 while more gradually scaling back rates lower during 2019’s cuts.

The Covid-19 pandemic, however, created a predicament for Marcus and other online banks. The Fed pinned its benchmark rate near zero, while two-year Treasury yields spent a full 12 months below 20 basis points. Just how low could they take rates on these “high-yield” accounts without betraying the name?

At Marcus, at least, the magic number has long been 0.5% for its savings account. The bank’s two-year CD currently offers 0.55%. For much of this year, that looked like a great deal when compared with market rates on similar-maturity Treasuries.

That’s not the case anymore. The two-year Treasury yield touched as high as 0.56% on Oct. 28, the highest since March 2020, as investors globally dumped short-dated government debt. Anyone who bought at that moment would have locked in a better yield than they could get with a Marcus CD of the same maturity. Two-year yields are higher than the savings account rate for the first time since May 2019.

These short-term rates may not be nearly enough to refute Ray Dalio’s oft-repeated line that “cash is trash,” but they’re at least showing signs that they won’t stay near zero forever at a time of rising inflation. Around the world, bond traders are betting that central banks will spring into action and begin slowly but surely tightening monetary policy to combat price pressures.