Avoid the 3.10% 3-Year CD that TD Ameritrade is Hawking

TD Ameritrade sent out an email today to their clients trying to sell a callable CD with an October 2021 maturity that is yielding 3.10% APY. The term of the CD is actually three years and three months.

Some BestCashCow users contacted me about it today; one even said it looks like a “no brainer”. While the product may seem attractive at first glance, it should be avoided.

Here is why:

1. You Lose If Interest Rates Go Down. The CD is callable by the issuer one-year after its issuance and then every three months. While I think it unlikely that interest rates will go down over the next three years, there are people who do, and if they do, this thing will be called away from you. That doesn't happen with a regular CD (non-brokered CD).
2. You Lose If Interest Rates Go Up (or if you need liquidity). If interest rates continue on their trajectory, and as guided by the Fed, they are going to be much higher in one year. And, while there is a “market” for brokered CDs, you’ll be selling this at a huge loss if you want to take advantage of higher interest rates (or if you need liquidity).

A rising interest rate environment is not the time to be chasing yield, especially by locking up your money for long periods. If you want to chase yield here, consider online one-year CDs or online two-year CDs. You may find better local rates on one-year or two-year CDs.

The only brokered CDs that we have seen recently that are at interesting are Morgan Stanley’s 6 month 2.20% CDs and, for the reasons discussed here, we’d also avoid those.