6-Month 2.20% Promotional CDs Are a Come-On

About a year ago, some major investment banks began offering their clients promotional CD rates through their licensed banking subsidiaries. Their rates have been higher than nationally available rates and were offered only for “new money”. Their goal was to get their customers to move money back into their institutions from outside by offering customers short duration CDs with rates slightly above anything they would likely find on BestCashCow.com or Bankrate.

I am told by brokers at some of these institutions that they again have new short-term CD offerings out there. The best offer that I have personally seen is a 2.20% 6-month CD which is being offered through June 5, 2018. While BestCashCow shows nationally available online bank, locally available bank, and credit union 1-year CD rates above those levels, it does not currently show that 6-month CD rates are available at rates this high (see the highest online 6 month rates here). One broker told me that these offerings are selling about as hot as the Kilauea caldera right now (his words, not mine).

To be clear, these CDs are basically treated as brokered CDs. We don’t like brokered CDs – especially not in a rising interest rate environment – for reasons I enumerated at the end of an article that I wrote last month. You are essentially locked into these CDs and cannot easily get out even with the payment of an early termination fee. Of course, with a six-month CD, the risks associated with being locked-in are more tolerable than those of even a 1-year CD.

With a six-month product, another serious question is whether you are even picking up anything by making the move from an online bank to one of these products. If you are making 1.80% or even 1.70% on $250,000 in an online savings account right now (see the best savings rates today) and believe that rates will go no higher in the short term, you could presumably pick up about $500 to $600 over the next six months by moving your money into one of these products.

But, it is going to take you at least a day to move your money electronically (by ACH) from your online bank to your investment banking account to take advantage of this offer. Once there it is going to take another day for this investment bank to sweep it into your cash account and deem it to be “new money” and another three business days for the purchase to ‘settle” (i.e., for the CD to be initiated). All tolled, you are losing a full week of interest. Then, you will probably lose another couple of days of interest trying to get money back into your online savings account in six months when the CD matures (especially if maturity is on a Friday or Saturday).

All of the sudden, much or all of your gains are completely evaporating, making staying in savings are better strategy, especially when you also consider the loss of liquidity and the likelihood of savings rates increasing over the coming months.

Our tip: Stay in online savings.