1-Year CD Rates from Online Banks 2023

Over the last two days, I have been contacted by a number of people who have asked me about 5-year CDs.  

I am not sure why this is all happening at once.  

I did learn today that TD Ameritrade is apparently pushing a 5-year brokered CD offering 3.30% which is currently higher than any online 5-year CD rates offered on BestCashCow and at least some of their brokers are directing people to compare rates on BestCashCow.   It should be noted that BestCashCow does show many local bank and credit union 5-year rates that are higher than the 3.30% TD rate.   Moreover, BestCashCow has always strongly advised against brokered CDs because they are a different animal that provides less protection to the holder and cannot be terminated with the payment of an early withdrawal penalty (and we redouble that advice here).

I also think that many people – quite correctly in hindsight – bought 5-year CDs with their cash in 2013 and are on a laddering program or some other program and feel that they soon must buy another 5-year CD.   My advice to these people is to put their programs away.   The more likely direction of interest rates at this point in the cycle is for them to increase.  The Federal Reserve and Jay Powell are pretty unequivocal.   We are in September now and the Fed funds rate is clearly going to be raised twice before the end of 2018 (to 2.25% - 2.50%).   The Federal Reserve’s most recent forecasts continue to guide towards a 3.125% Fed funds rate at the end of 2019 and a 3.375% Fed funds rate at the end of 2020.   And, there is risk to those numbers.  This Administration’s ridiculous trade “policy” could cause inflation that could drive the Fed to move by 2020 to a much higher Fed funds rate.  So, if you are going to lock in for 5 years, I think you want a significant premium over that rate and the premium just isn’t there right now.

If you must buy something to augment your current savings rate, you would be much better off looking at 1-year rates.  Several online banks are currently offering 1-year CD rates as high as 2.65%.  If inflation comes soon and interest rates spike, you could even regret those purchases.   But, the term is short and the opportunity for a significant mistake simply is not there.

See all of the best online 1-year CD rates here.

Editor’s Note:  Marcus Bank and Synchrony Bank are both advertisers on BestCashCow.   Please read our Advertiser Disclosure here. 

I think Jamie Dimon is the smartest guy on Wall Street.   He wasn’t only the brains behind Smith Barney when Sandy Wiell made his run, he also turned around Bank One and has engineered an extraordinary turn at Chase.  Plus, he went to Tufts.

So, while there isn’t too much intelligence coming out of Wall Street, when Jamie Dimon speaks, people should listen.    We listened to him about bitcoin and we’ll listen to him again now.

According to Bloomberg, Dimon was speaking at the Aspen Institute and said that 10-year Treasury should already be at 4% and could be at 5% in the near future.

While Dimon believes that a rise in the Treasury will not immediately derail the bull market (he suggested it could run a couple years longer), it is worth analyzing what a sharp steepening of the US Treasury would do to asset prices.  

In particular, BestCashCow has already warned against bonds in our article entitled You Are About to Get Killed in Bonds.   That article was written a year ago when 10-year Treasury rates were much lower.   Given Dimon’s view, we are redoubling that advice now.

And, while we are excited that one-year CD rates are now offering a real premium over savings rates, should the yield curve steepen as Dimon predicts, you really do not want to go out further than one year.

We recommended some great savings and money market accounts in our recent savings rate update.   Savings and money market accounts are as short as you can possible be on the yield curve.   If the 10-year Treasury were to quickly move to 5%, you will be glad to be concentrated there.

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.