Amex Offering A 5-Year CD Through TD Ameritrade at 2.40%

Amex Offering A 5-Year CD Through TD Ameritrade at 2.40%

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

This issue's yield looks attractive, but it should be avoided.

TD Ameritrade is contacting all of their clients today to try and syndicate a 5 year CD paying 2.40%.   This CD is covered under FDIC insurance rules to the $250,000 limit and because it is issued by Amex Centurion Bank, it is covered under a different FDIC certificate than savings accounts you may have at American Express Bank FSB.  It also may offer a yield slightly higher than the best 5-year rates otherwise available.  Nevertheless, these types of brokered issues should be avoided.

Longer-term CDs, such as a 5-year CD, can be attractive, even in a low rate environment, but only when they offer a reasonable termination clause.  As this article explains, a 5-year CD with a 6 month early termination fee can effectively represent a way to get a decent one-year yield with an option to continue to hold the CD if interest rates do not rise in the outer years.

Brokered CDs, like this Amex issue through TD Ameritrade, do not offer this option.  If interest rates rise, you are either stuck earning a below market interest rate or forced to sell the CD at a loss through TD Ameritrade. 

Longer-term interest rates may rise dramatically at some point over the next 5 years.  In fact, a dramatic spike may occur in the next year when the Federal Reserve begins to raise interest rates later this year.   Even if you commit to trying to get out of this issue at the earliest signs of a interest rate move, you are going to take a huge loss selling through TD Ameritrade into an illiquid market (in fact, you would take a huge loss were you to try to sell this issue the day after purchasing it since the market is entirely illiquid).   In an online 5-year CD with a 6 month early termination penalty - such as those offered by Synchrony Bank and Barclays Bank - you always have the option of holding the CD for 6 months and using the six months' interest to cover the penalty.   

It should also be noted that most online brokers waive the early termination penalty upon the death of the holder, allowing the heirs / beneficiaries or executor to redeem the CD at par value.  TD Ameritrade usually also forces brokered CDs to be sold into the market at a loss upon death, although with this offering they claim to offer a survivor’s option (when I called TD Ameritrade about this issue, their fixed income department was unable to fully explain or document the details of this option).

Compare the best 5 year CD rates.

Image: Stuart Miles at FreeDigitalPhotos.net

Home Savings in Northeast Ohio Offering Special 12-Month CD at 3.00% APY

Home Savings in Northeast Ohio Offering Special 12-Month CD at 3.00% APY

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

Lucky savers in Ohio will be able to open a 12-month CD from Home Savings that pays 3.00% APY. This is easily the best 12-month CD rate available in the country.

In the comments section for Home Savings (the official name of the bank is The Home Savings and Loan Association of Youngstown, Ohio), some visitors questioned whether the 3.00% APY 12-month CD listed on BestCashCow was valid. It seems almost too good to be true. We checked it out and the rate is valid. This is easily the best 12-month CD rate available in the country. For comparison, the best 1 year online CD rate is 1.23% APY and the average rate for this term is 0.35% APY.  

The CD can only be opened at select branches including Chardon, Aurora, Salem, and Streetsboro. The rate is only good with new money deposited into the bank.

Home Savings branches are located in Northeast Ohio. The bank was established in 1889 and has assets of $1.8 billion. Home Savings is an FDIC insured institution.

If you live anywhere near a Home Savings branch then it makes sense to give them a call or pay them a visit and see if they offer the special rate.

Don't live near a Home Savings bank? BestCashCow lists plenty of above-average online and local rates you are eligible to open.


Barclays and Synchrony 5 Year CDs Offer Attractive Early Termination Terms

Barclays and Synchrony 5 Year CDs Offer Attractive Early Termination Terms

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

Early termination fees of only 6 months simple interest on the 5 year CDs offered by Barclays and Synchrony make these products more attractive than short term CDs and allow you to approach them as having the option to continue to earn 2.25% APY for as long as US interest rates rates remain low.

Author's Note: In late 2017, Synchrony changed the earlier termination fee on its newly issued and renewed 5-year CDs to 1 year simple interest from 6 months.

It is beginning to look like interest rates in the US may never rise.  Yield markets are no longer pricing in a move by the Federal Reserve in the summer of 2015, and most believe that any move to raise interest rates is going to be very slow and deliberate and will not bring interest rates near historical norms for the foreseeable future.  Low energy prices and global easing have removed any inflationary pressure.  Yellen is very dovish.

Against this backdrop, depositors need to look for ways to earn more than the rates that online banks are currently paying (see the best rates here).  Barclays Bank and Synchrony Bank both offer 2.25% APY online certificate of deposit (CD) products.  As both CD products offer early termination fees of only 6 months simple interest, they essentially give a depositor the option to terminate the CD with very acceptable consequences when and if rates begin to rise.

Let's illustrate this with some numbers.  Assume you put $100,000 into one of these 5 year CDs.  Suppose that in one year's time rates have risen to a point where you are able to get a higher interest rate on a savings account or a short term CD than 2.25%.  You would have earned $2,250 in interest on your CD, but in order to release yourself from the obligation to hold the CD for four more years until maturity, you would be responsible for paying $1,125, half of your interest, as an early termination penalty.  The 1.125% that you will have effectively earned over the one year that you held the CD will outperform current online savings rates, and is just slightly less than the best one year CD rates (see these rates here).

And, if rates still haven't risen in one year, you continue to hold the CD until they do rise.  And, if the US is the new Japan and rates never rise, you will earn more than twice as much interest on your cash over than next five years than you would earn by staying put in even the highest yielding online savings accounts.

Note: You may be able to earn a higher rate on a 5 year CD than those rates mentioned.  Compare all five year CD rates here.  Also, you may wish to check with other banks as some banks may offer still less onerous early termination fees.

Editor's Note: As of the middle of 2016, both Barclays and Synchrony were offering 5-year CD rates below those mentioned in this article.  Additionally, Synchrony has now changed their teams and conditions so that 5-year CDs now have a 1-year early termination fee.