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1-Year CD Rates from Online Banks 2020

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

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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”

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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

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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.