Buying Short Term CDs Doesn't Seem So Wise at the Moment
Buying Short Term CDs Doesn't Seem So Wise at the Moment
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Author:Jason Rodgers
on June 11, 2009
- modified on August 2, 2017
Short term CD rates are falling as the Federal Reserve holds the overnight Fed Funds rate close to zero.
Short-term CDs just aren’t attractive at the moment. The 10-year Treasury is now pushing 4% - changing the entire yield curve. While the Fed may try desperately to hold rates low, but the reality is that inflation is a real threat at the moment. If we do see inflation, savings and money market rates will quickly go up. Since savings rates are very close to, and in many cases – above, short term CD rates, they are your better bet. There is a real risk of higher rates, and if they were to fall, they don’t have far to fall anyway.
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.
What do you mean by short term? If I put something into a 1-year CD then I can always reinvest the money in 12 months once rates have risen.
I would think the danger would be in longer-term CDs, where I'm locked in. As the analysis on this site shows, those rates have stabilize more than the shorter-term ones but that doesn't mean they aren't going to spike.
A 12-month at 2.49% sure seems better than a 5-year CD at 3.80%.
Comments
Sam Cass
June 11, 2009
What do you mean by short term? If I put something into a 1-year CD then I can always reinvest the money in 12 months once rates have risen.
I would think the danger would be in longer-term CDs, where I'm locked in. As the analysis on this site shows, those rates have stabilize more than the shorter-term ones but that doesn't mean they aren't going to spike.
A 12-month at 2.49% sure seems better than a 5-year CD at 3.80%.
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