A Five-Year Certificate of Deposit Paying 3% in 2018 - Revisited

When we began 2018, I wrote an article predicting that that we would see 5-Year CDs offering 3% in 2018, and recommending that depositors wait for the 3-handle before pulling the trigger and buying these products.

We have seen 5-year CD, offered in some markets, that yield 3% for over a month. Now, midway though 2018, we see 3% CDs offered nationally. This morning, with Marcus raising their 5-year CD to 3%, we even see the better-known names beginning to hit 3%.

Given that rates have been compressed for over a decade, a 3% rate seems like an attractive place to lock-in for the long-term. Even with the Fed raising rates, many are predicting that we have seen the top of long-term rates, and even more are predicting that the President’s disastrous economic policies will throw the economy into a tailspin that will force the Fed to curtail its actions.

We, however, think it is equally likely that the Fed will be forced to move still faster to fight off incipient inflation caused by poor China policy. It is possible, if not likely, that 5-year CDs will rise to 4% by this time next year. Therefore, we’d recommend depositors continue to focus on savings and shorter-term CDs.

If you do decide to invest in long-term CDs, we strongly recommend doing so judiciously and looking for lower early withdrawal penalties. Capital One, Barclays and Sallie Mae all offer 5-year CDs with a 6-months penalty should rates rise or should you need the money. Marcus’s 5-year CD penalty is 270 days. We would avoid those products that have penalties of 1-year or longer.

Read our 65 Questions to Ask Before Choosing a CD.