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

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

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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.

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GiftsforBanking.com: Interesting, but not for Everyone

GiftsforBanking.com: Interesting, but not for Everyone

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There are a ton of ads floating across the internet offering you an “Ipad” bundle or a new Samsung flat screen TV if you open a new 2-year CD.

If you click on one of the advertisements, you will immediately be transported back to 1996 which was not only the last time gifts were routinely offered for opening a CD, but also appears to be the year that the website where you have landed was designed.

If you can navigate through the 1996-ness, you find an offer that is real and present and interesting, but not for everyone.  The two-year CD rate is 1.85% - which today is a very competitive 2-year online CD rate.  In some parts of the country, you will find better 2-year CD rates at local banks or local credit unions.   (Giftsforbanking is also offering three and four year rates on this product that are not competitive).

If you open a 2-year CD with over $100,000, you’ll receive a coupon redeemable for any of several products such as a Trek bike, a 55-inch Samsung curved TV, a 12-inch MacBook, a tag Heuer Aquaracer watch, a Baume & Mercier watch, a Canon Eos camera or a DeLonghi expresso machine.  With only a $25,000 deposit, you can get a current third-generation Apple watch.   With a $50,000 deposit, you can get a number of other interesting products or packages, such as a Bose speaker.  Based on our research, it appears that you can get a gift or package of gifts that retails as high as $1,500 with a $100,000 deposit, and for those who are number crunchers, such a gift will gross up a CD return by 75 basis points annually.

GiftsforBanking is owned by Flushing Bank.  The bank was established in 1929 as the Flushing Savings Bank in the Borough of Queens, New York and renamed in 2010. With assets in excess of $6.2 billion, it is now one of New York State’s largest banks.  You can learn more about the bank here. Flushing Bank  owns IGoBanking and Bank Purely and this CD is opened through the IGoBanking website.  They permit more than one CD to be opened under this program which is also quite interesting, but, as with any bank, you should stay within FDIC-insurance limits.

The fine print on the GiftsforBanking website includes the following language:

“There is a substantial penalty for early withdrawals, including the value of the gift chosen. The value of all gifts will be considered as interest on your account for tax purposes in the first year the account is opened. A 1099-INT statement for the value of the gift (including applicable sales tax, shipping and handling costs) will be issued for the year of gift redemption.”     

When we contacted Flushing Bank, we learned that the penalty for early withdrawal is 6 months on the 2-year CD and that those redeeming can expect a 1099-INT for “more than” $575 for a $25,000 deposit, $1100 for a $50,000 deposit and $1700 for a $100,000 deposit.

With the receipt of the 1099-INT, you will be responsible for reporting and paying tax at your ordinary tax rate in the year in which you open the account.  Should you need to terminate the CD early, you’ll also be out the bank’s 6-month early withdrawal penalty as well as the amount reported under the 1099-INT.

This offer therefore only makes sense if you are entirely certain that you will not need or want your principal back before maturity and that the product you are receiving as a gift is one that you would definitely want to purchase anyway.   But, if your goal is simply to be rewarded for your banking activity, we prefer opening a new travel rewards credit card where you can get more value without locking up your capital and receiving a tax liability.  

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EverBank Returns to Its Earlier Monkey Business Following TIAA Acquisition

EverBank Returns to Its Earlier Monkey Business Following TIAA Acquisition

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EverBank today launched a 3-year MarketSafe Emerging Currency CD.  I could write ad nauseum here about how inappropriate this investment is for most unsuspecting investors.  I could write about why it shouldn’t be called a Certificate of Deposit.  I could write about how I believe that EverBank is violating the 1933 SEC Act.  But, wait a minute.  I already did.  This product is exactly the same as a product that EverBank offered in 2014 and that I wrote about extensively then (see my article here), except that they have replaced one dictatorship’s currency for another (swapping out the Russian ruble for the Turkish lira) and decided that Indonesia’s rupiah is more attractive than South Africa’s rand. The Chinese renminbi, the Indian rupee and the Brazilian real, however, remain constants in this product.  The other things that remain a constant is that neither the people offering it nor those buying it have any idea what they are doing, and those buying it will not see any appreciation on their investment.

As a general proposition, this is the wrong time in the cycle to be playing with emerging markets, although some countries have unique circumstances that will enable them to outperform (perhaps Argentina).  If you must invest, the play is to invest in those countries or in U.S. or European denominated debt through a fund offered by a big fund family that knows what they are doing in emerging markets (maybe Ashmore).  And, if you insist on investing in currencies, the major investment banks offer structured products geared to lever appreciation in U.S. dollar terms should another currency (a single currency) appreciate against it.    Under any circumstance, avoid this EverBank product.

The best 3-year CD rates are listed here.