Jumping Into A One-Year CD Is Not Particularly Compelling Here

Jumping Into A One-Year CD Is Not Particularly Compelling Here

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

The best savings rates in online accounts is now in the 1 to 1.05% APY range.  You may find a higher rate here on BestCashCow.  You may also find a higher rate in brick-and-mortar banks or in credit unions.  To boot, some brick-and-mortar banks are offering short-term incentives for current depositors to bring new money (for example, HSBC in New York is currently offering existing depositors a 5-month CD rate on new money of 1.30%).

Against this backdrop, online banks (and offline banks too) are offering one-year CD rates of 1.25%.   Again, you may find a higher rate here.

If you were to purchase a 1.25% 1-year CD with $250,000, the maximum insured by the FDIC or the NCUA in an individual account, your 20 basis point increase over the 1.05% savings rate would amount to an increased pre-tax yield of $500 over the coming 12 months.

Interest rates on savings and money market accounts are not coming down in 2017 and are quite likely to increase.  Even if they were to stay constant, $500 pre-tax is a small sum to receive for sacrificing your liquidity.  Opt for online savings over online 12-month CDs here.


EverBank’s 5-Year CD Rate is Like the Pool at EverBank Field

EverBank’s 5-Year CD Rate is Like the Pool at EverBank Field

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EverBank has become very aggressive with their CD rates again - either because they are trying to be on the cutting edge of increasing yields or because they are eager to attract new capital ahead of TIAA’s overpriced acquisition.

EverBank’s 5-year CD rate is, in fact, already at 2.28% and that has caught our attention because we recently recommended that depositors categorically avoid CD laddering strategies – staying with only short maturities - until they see 5-year rates above 2.30%.

We recommend that depositors continue to exercise extreme caution here, especially with EverBank.  EverBank’s early withdrawal fee, as stated in the bank’s terms and conditions, is one quarter the total amount of interest that would have been earned had the CD been held to maturity.  A three-month early withdrawal fee on a one-year CD is quite reasonable; this is consistent with the fee charged by Sallie Mae or BAC Florida, two banks which aggressively compete in the 1-year term space.   Giving up 15 months of interest to terminate a five-year CD early, however, is not market.  It is excessive, exculpatory.   Especially with longer term CDs, we also suggest caution as banks do retain the right to deny an early redemption request (and, in this regard, TIAA’s awful customer service history scares us greatly as well).

A good starting point for investing in CDs is by reading BestCashCow’s e-Book on 65 questions to ask before choosing a CD.   Depositors then need to carefully read the bank’s terms and conditions before they invest.     Some banks – like Everbank – may include wording that you will need to decipher.

With the case of EverBank, it is a lot like jumping into the pool at EverBank Field.  The pictures of the pool look wonderful so long as they are take with four models when the stadium is empty.  Once you have bought your ticket to the game, though, you will find it full of drunk guys and the water might not exactly be so healthy for you either.  

Explore all CD rates here.


CD Laddering is A Tried and True Strategy, but Untested in the Current Environment

CD Laddering is A Tried and True Strategy, but Untested in the Current Environment

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

Following the Fed's rate increase yesterday - only the second in over a decade - this is a very bad time to be buying long term CDs, even if it is in conjunction with a strategy of buying short term ones.

Following the Fed’s rate increase yesterday – only the second in over a decade – this is a very bad time to be buying long term CDs, even if it is in conjunction with a strategy of buying short term ones.

BestCashCow is a website that provides people with CD and savings rates details (as well as mortgage rate and credit card information).  Our position is that people should have a substantial amount of their retirement assets in safe places.  With the stock market pushing 20,000, a safe place is not the stock market.  And, with interest rates at historic lows at the end of what has been an unprecedented decade, municipal bonds and other long-term fixed income assets are not a safe place either.

One of our longstanding competitors – and in fact a competitor who we have always held in high esteem - published a commentary explaining that following the Fed’s increase in the Fed Funds rate to 50 bps, depositors continue to be well advised to seek out a CD laddering strategy.  We at BestCashCow disagree.

Other than the fact that Fed Chair Yellin’s commentary and her disposition remain dovish, every reasonable indicator is suggesting that interests rates will be dramatically higher in 1 year (the Fed itself is guiding towards a Fed funds rate of 1.25% in 12 months).   To boot, Trump and Mnuchin are going to remove regulation on small and medium sized banks, creating more competition for your money in the very near future.

We believe that the laddering strategy is tried and true and recommend it generally in our e-Book on CDs.  However, this is an unusual time where rates are low and certain to rise, as soon as early in 2017.  Therefore, even with short early withdrawal fees (which our competitor points out that banks may not honor), any CD over 1 year is simply not attractive against the backdrop of an imminent reversal in our decades-long period of unreasonably low interest rates.  

Cash rates still may not be sexy, but you are not getting enough of a time premium or a risk premium at this moment to be laddering beyond 1 year.    

Hint: The best 5-year CD rates were over 2.30% less than 18 months ago.  Don’t even consider 3, 4, or 5 year CDs until you see 5-year CD rates at or above that level again.

See the best savings rates here and the best 1-year CD rates here.