1-Year CD Rates from Online Banks 2021

We’ve written before, multiple times, about EverBank’s currency CD program.   We addressed these products most recently here, having first addressed them here.  

The EverBank 3-Year Petrol Currency Marketsafe CD - like the earlier EverBank products on which it is based - is not a CDs at all.   A CD is a time deposit guaranteed to compensate the depositor with a certain rate of return as consideration for keeping their money with the issuing bank for a certain period of time.  EverBank's so-called CD is an investment product designed to exploit unsuspecting people without any currency knowledge or wherewithal and to get them into a product that is more likely than not to deliver no return whatsoever over a long period of time.

When EverBank today announced this 3-Year Petrol Currency Marketsafe CD today, they produce a page with all sorts of wishy-washy rationale on why customers should be desperate to invest in a vague product involving the Canadian dollar, the Mexican peso, the Russian ruble and the Brazilian real as a way to take advantage of higher oil prices.   Beyond the wishy-washy rationale, the page and the video on the page represent a prima facie violation of the Securities and Exchange Act of 1933.

So, let’s make this simple: 

• If you believe oil prices are going to go up, you can buy Exxon, Chevron, or another US oil company that produces a dividend. 
• If you want to take on more risk associated with Canada, Mexico or Brazil, you can buy Canadian oil trusts, Pemex or Petrobras.   
• If you must own Canadian dollars, Mexican pesos or Brazilian real, you can open an interest bearing foreign currency account with Citibank.
• If you must own Russian rubles, you should get your head examined.  
• If you want your money to be tied up with EverBank for the next three years, you should check BestCashCow’s 3-year CD rates and see how EverBank compares with others. 

Under no circumstances should you invest in EverBank's 3-Year Petrol Currency Marketsafe CD.

For many years, Certificates of Deposits (CDs) have provided a relatively safe way for investors to earn a little more than the best savings rates.   For this reason, BestCashCow has always recommended that people take a look at short term CDs to protect themselves and enhance their returns in not only a falling interest rate environment, but also a stable interest rate environment.

In a rising interest rate environment – or one where the market is pricing in a rise in interest rates – CDs can rise more quickly than savings rates and therefore appear more interesting, especially when people have become accustomed to seeing low interest rates for some time.

In fact, if you look at the chart on this page entitled “Spread Between Savings Rates and 1 Year CDs” you will see that the premium offered on a 1-year CD over savings rates is now approaching 50 basis points (its widest point in a decade).

It would seem that one-year CDs are becoming more attractive. However, it is important to understand that widening premiums represent an expectation of much higher savings rates in the coming year.  The premium is widening to provide additional compensation to the purchaser for locking up their money for a full year.

But is it enough?  

This is a question for each individual to decide based on their own liquidity needs and expectations for interest rates over the coming year, but we would suggest that it might not be.  Last year, at this time, the highest online CD rates were at 1.35%.   I was a purchaser and quickly had buyer’s remorse as savings rates rose.

An additional risk to CDs as they rise that many people do not consider is the rise in early withdrawal fees.  

Early withdrawal fees, often called early termination fees, are the fees that you as a consumer need to pay in order to break a CD early should you require your capital before the end of the CD term.  These fees are always expressed in terms of months of interest on the CD and, if you withdraw early in the term of the CD, you may loose principal.  We also caution that the issuing bank virtually always retains the right to deny your right to early withdrawal (while most banks will not exercise this clause, you learn more about this risk here).

It has been BestCashCow’s opinion that a fair early withdrawal fee on a 1-year CD is 3 months’ interest and a fair early withdrawal fee on a CD longer than 1-year is 6 months’.

Without considering the risk of longer term CDs and withdrawal fees in a rising interest rate environment, let’s again just look at 1-year CDs.  A one-year CD purchased a year ago at 1.35% with a 3 month early withdrawal fee would have cost 0.3375% to exit.  On a $200,000 deposit, you would have had to pay $675 should rates rise or should you otherwise need to withdraw month early.  That same $200,000 invested in a 2% CD is going to cost you 0.50% or $1,000 to terminate early.  The risk associated with the greater penalty combined with the risk of higher interest rates might give you more pause in 2018.

So we are cautious about not just longer term CDs, but also about short term CDs here.   Anyone who is hesitant about locking in should take a look at the best online savings rates first.

Want to learn more about CDs?   We think a good starting point is with our 65 Questions to Ask Before Buying a CD.

As we begin 2018, 5-year Certificates of Deposit offered nationally and online don't yet earn 3%.  Depending on where you live, you may however find a 5-year CD in your city offered by a local bank that pays 3%.  Or, you may find a 5-year time deposit (which is the credit union terminology for a 5-year CD) offered by a local credit union that pays over 3%. 

Interest rates have moved dramatically higher in 2017.  When we began 2017, it was difficult to find a nationally offered 5-year CD at 2%.

With the Federal Reserve under Jay Powell predicted to move the Fed funds rate at least 3 times in 2018, BestCashCow predicts that we will see 5-year CDs higher than 3% in 2018.  Therefore, we would suggest that you refrain from buying a 5-year CD at least until you see a 3-handle. 

And, when you do see 3% APY on a 5-year CD, you should be aware that we may be poised to move still higher from there.  For that reason, we also recommend that you look for CDs with early termination fees (or penalties) of 6 months’ interest or less.    Many of the 5-year CD rates that are listed in our online CD table have more onerous penalties for early termination.  You should also be aware that the issuing bank may retain the right not to honor an early termination request.

As we start 2018, savings accounts and one-year CDs are a safer bet.  You may also want to check CD specials online and locally.

Happy New Year from all of the folks at BestCashCow.