BestCashCow today shows online banks offering one-year CD rates as high as 2.28%. Depending on where you live, you may also find local banks or credit unions near where you live that have 1-year CD rates at or around that level.

It is very compelling to want to rush into 1-year CDs at or around that level with any FDIC-insured bank up to FDIC limits. Savings rates are still strong, but they seem guaranteed to fall further as we work our way through 2020.

But, it also seems to me that it is an especially important time to think very, very differently about liquidity than we may have ever thought about it before. As we work our way through a COVID-19 crisis that is certain to become more and more profound over the next several months with a desperate President.

If you anticipate that you might be economically vulnerable through a loss of job or sickness, the next year would be an important time to keep your liquidity.

Those who are not economically vulnerable and are certain to have the resources to get to the other side of the Coronavirus pandemic will also want to be certain that they have the liquidity to take advantage of opportunities that we will certainly see in equity and bond markets over the summer and fall as it proves difficult to safely reopen the economy. Opportunities to invest in real estate and in struggling small businesses where you live are almost certain to emerge as well.

Finally, when I encourage people to be careful to preserve their liquidity, they often tell me that they can always get their money out of CDs with the payment of an early withdrawal penalty. I would encourage these folks to read this article that I wrote in 2016. Banks and credit unions retain discretion to deny early withdrawal request, and while it is exceedingly rare, we really do not know what steps banks may need to take to preserve their positions as we get through 2020.

BestCashCow has always advocated that consumers keep large percentages of their assets in cash for difficult periods and that they make the most of their cash by seeking the highest returns available. This next year, however, could be an important time to favor liquidity over the premiums that short-term CDs may offer.

If you insist on locking down a rate, no penalty CDs may offer a solution. You’ll find those rates listed among our special CD products here.

We’ve read and heard a lot of financial markets information since the Federal Reserve’s emergency rate cut last Tuesday in response to the spread of Coronavirus.

By the end of the week, 10-year US Treasuries were trading under 70 basis points.

I’ve seen articles recommending people buy US Treasuries. Although we did not anticipate Coronavirus or anything like it in the fall and warned then against long-term bonds, we continue to highlight extraordinary risks to principal in long-term low yielding instruments should rates rise before maturity. Hence, US Treasuries are inappropriate now for non-institutional investors.

Likewise, this article in a well-respected publication over the weekend caught my attention. In the first half of the article, the author is citing an opportunity in Series EE and Series I bonds. These US government instruments are fully detailed here, but because of the limits they are inappropriate for most. (Also, those with accounts at Merrill and Morgan have access to other, higher yielding instruments that are tied to CPI-U).

The second half of the same article cites what the author seems to believe is an extraordinary opportunity in municipal bonds. The author points out that, for those in the highest tax brackets, a 10-year municipal trading at 90 basis points has a tax equivalent yield of almost 1.40%, but fails to point out the illiquidity of municipals, that this illiquidity causes still greater risk to principal should rates rise over the course of the bonds (and they will), or that some (perhaps many) municipalities will face credit problems the longer the Coronavirus crisis lingers.

There may be a temptation to believe that interest rates are going to be low forever when you watch the incompetent response of the Trump Administration. But, in one year, you could easily be looking back at your actions as having been too rash.

Think about whether you really want to make a bet that interest rates in the US are going to be low forever.

If you believe that Gilead and our medical professionals are going to get a handle on this crisis over the next year, you should be buying 1-year CDs. With many on offer still above 2%, this is a much more sensible place to let your assets hang out. And, in the worst case, you’ll be liquid in a year.

Check online CD rates here.

Compare local CD rates where you live here.

I was at the gym yesterday and a friend who manages money for wealthy New Yorkers asked me if his clients (a married couple) should be putting $500,000 into a 1-year CD here and now at 2.00%.

He believes that with the stock market at an extremely elevated valuation and likely to correct, with the 10-year bond at 1.60% and yields likely to rise, and with little opportunity for appreciation in gold and other alternative assets, a one-year CD seems like a good place to hide out.

I quickly explained that 2.00% is not the highest one-year CD rate. You will find higher rates online here (hyperlink), and you may find still higher rates at banks and credit unions where you live.

Then, I turned to the cash versus CD discussion.

For some time, I have recommended one-year CDs as a way to improve your return on cash that you want to keep liquid but know that you will not need for over a year. As the Fed was increasing rates and the expectations was for further increases, the spread between CDs and savings was also increasing. This time last year, the best online savings rates stood around 2.30% and one-year online CDs were around 2.85%.

While BestCashCow’s surveys still reflect a wide spreads nationally (see the chart on the top of our online one-year CD page), the highest online savings rates are not much below the best one-year CD rates today.

Savings is always going to give you more flexibility. It can be accessed without penalty in an emergency. It can be deployed instantly should you see a market opportunity or some sort of other opportunity. So, I think that there is a strong argument for holding cash in savings or No Penalty CDs here and not now buying new short-term CDs (or allowing short-term CDs to auto-renew).

At the same time, I’ve always argued that there is very little risk in a one-year CD. You are never very far from maturity, and the standard early withdrawal penalty on one-year CDs is only three months’ interest (but, you should always check on the early withdrawal rules and fees before buying a CD). And, while it is hard to get excited about the narrowing margin, there is a real risk as we work through 2020 that President Pence will try to raise money from real estate developers and try to force Fed Chairman Jerome Powell to continue to lower the Fed Funds rate to zero (as Trump did).