Jamie Dimon Suggests that the 10-Year Treasury Could be at 5%

I think Jamie Dimon is the smartest guy on Wall Street.   He wasn’t only the brains behind Smith Barney when Sandy Wiell made his run, he also turned around Bank One and has engineered an extraordinary turn at Chase.  Plus, he went to Tufts.

So, while there isn’t too much intelligence coming out of Wall Street, when Jamie Dimon speaks, people should listen.    We listened to him about bitcoin and we’ll listen to him again now.

According to Bloomberg, Dimon was speaking at the Aspen Institute and said that 10-year Treasury should already be at 4% and could be at 5% in the near future.

While Dimon believes that a rise in the Treasury will not immediately derail the bull market (he suggested it could run a couple years longer), it is worth analyzing what a sharp steepening of the US Treasury would do to asset prices.  

In particular, BestCashCow has already warned against bonds in our article entitled You Are About to Get Killed in Bonds.   That article was written a year ago when 10-year Treasury rates were much lower.   Given Dimon’s view, we are redoubling that advice now.

And, while we are excited that one-year CD rates are now offering a real premium over savings rates, should the yield curve steepen as Dimon predicts, you really do not want to go out further than one year.

We recommended some great savings and money market accounts in our recent savings rate update.   Savings and money market accounts are as short as you can possible be on the yield curve.   If the 10-year Treasury were to quickly move to 5%, you will be glad to be concentrated there.


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

Rate information contained on this page may have changed. Please find latest cd rates.

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.


Constant and Completely Inappropriate Advice on CNBC: “Just Buy the 2-Year Treasury”

Rate information contained on this page may have changed. Please find latest cd rates.

The recent rise in the Fed Funds rate and in short term rates – and real fear of economic instability caused by Trumputin’s erratic behavior and US imposed sanctions – is leading virtually every talking head on CNBC to advise viewers to “Just Buy the 2-Year Treasury”.

The 2-year Treasury rate today sits at 2.52%.  Rates are higher than they have been in years and, therefore, it looks attractive.  The rationale that is provided for buying is that it is a great yield and that, in the worst case, you will get your money back in 2 years.   That rationale may make sense for corporate managers and endowments with large amounts to deploy.  But, those aren’t really the people who are watching CNBC, and for 99.999% of CNBC’s audience, the advice is wholly inappropriate.

Short-term rates are clearly on an upwards trajectory.  If they were to move dramatically higher over the next six months to one-year, which is possible given the Fed’s guidance and, in fact, probable if you believe that we are entering an inflationary trade war, investors in U.S. Treasuries of all maturities, including short-term Treasuries, will take huge hits to principal if they need to be liquidated.   The main point here is that it continues to be an absolutely dreadful environment for buying any sort of bonds.  To be clear, savings accounts which are already yielding close to 2% are much safer than the 2-year US Treasury.

If you really insist on reaching for yield, a 2-year CD is a much more attractive option than the 2-year US Treasury.  BestCashCow now shows many nationally available online 2-Year CD rates that are at 2.75% or higher.  In certain geographies, BestCashCow is showing rates from local banks and credit unions that are even higher.  So you are getting a much higher yield.  With most CDs you will ordinarily have the ability to get your money back early with the payment of an early withdrawal fee (although not always).  Thus, your risk becomes quantifiable and measured (versus entirely open-ended with Treasuries).   1-year CDs ordinarily have smaller early withdrawal fees (less risk) and are also offering yields that that are almost as high as the 2-Year US Treasury.

BestCashCow always recommends that depositors stay within FDIC limits.  High net worth individuals have a harder time staying within these limits and may be more inclined to consider Treasuries.  However, given the proliferation of CDARS programs, the CNBC advice is inappropriate for all but the wealthiest of these folks as well.

Before investing in any CD, read or download our CD primer.

See today's best online savings rates.


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

Rate information contained on this page may have changed. Please find latest cd rates.

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.


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

Rate information contained on this page may have changed. Please find latest cd rates.

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.


The 10-Year Crosses 3% - As Public Interest in CDs Increases, Avoid Brokered CDs

Rate information contained on this page may have changed. Please find latest cd rates.

I have come across a lot of people recently who believe that this is the time to lock into long-term CDs now that the US 10-Year Treasury has crossed 3%.   I believe that both short-term and long-term interest rates will be much higher at the end of 2019 as the Fed continues to raise the Fed Funds rate.   I would not encourage anyone to buy anything longer than a one-year CD.

Even if you disagree with me and insist on buying long-term CDs now, you must protect yourself from the possibility of dramatically higher interest rates within the next year or two.  You do this by looking for only those CDs that have the most reasonable early withdrawal penalties. 

Learn more about early withdrawal penalties and the possibility, albeit remote, that a bank or credit union may refuse to allow early termination of a CD, even with payment of a penalty, here.  You should also read our 65 questions to ask if you are new to CDs before making any purchase.

About 4 years ago, I wrote an article advising people to avoid fraudulent websites offering too-good-to-be-true brokered CD rates

Someone purporting to be a financial advisor commented on the article yesterday advising that their brokerage now, for the first time, offers 5-year brokered CDs that are higher than the highest rates shown on this site.  While the comment is not germane to the article on which it was placed, I want to address it.

First, the rates that the commenter cites are not higher than rates shown on BestCashCow.  I’ve reviewed the brokered CD rates offered by Morgan Stanley and Merrill Lynch this morning.   Neither is offering a 5-year brokered CD above 3%.  They are both offering 10-year brokered CDs at 3.15% (you should absolutely avoid anything longer than 5 years).

Second, in addition to online CD rates, we also show local rates and credit union rates.   Depending on where you live, you will likely now find 5-year CD rates that are above 3.00% on BestCashCow.

Third, if you are going to fight the reality of rising interest rates, you need to give yourself the best ability possible to get out if you need the money or are wrong about the direction of interest rates.  Brokered CDs do not have early withdrawal penalties.  If you need to exit a brokered CD early, you are dealing with a secondary market, and that basically means that you are selling to the brokers at their ask price.  If you buy a 10-year brokered CD from your broker now at 3.15% and need to exit it in 18 months, you will likely take a huge bath.   Even if you buy a 5-year brokered CD at 3%, you are going to lose a lot of money.

Brokered CDs have a very different risk profile from online or bank or credit union-issued CDs.   If you want to take that bet that they offer on rates, then you should buy bonds (which we also don’t recommend).