Exhausted from Low Savings Account Rates?  Consider 5-Year CDs

Exhausted from Low Savings Account Rates? Consider 5-Year CDs

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It has been 9 years already of making virtually nothing from savings account rates. Even with the best rates recently moving up to the 1.05% – 1.25% range as the Federal Reserve has raised the Fed funds rate, cash has been a frustrating asset class for many years now.

Many retirees and others who depend on appreciation of their cash not just to live, but to keep pace with real inflation, have begun to throw in the towel. They have largely moved to riskier asset classes such as municipal bond funds and high yielding dividend stocks.

I do not dispute the importance of dividend stocks in a balanced portfolio. Verizon, Exxon and the major European pharmaceutical stocks pay fantastic dividends. Even if you believe that the stock market is overvalued and ripe for a significant correction as the world begins to grapple with the consequences of an unstable US President, you probably should have some exposure to high yielding equities.

Your exhaustion with low savings rates, however, should not lead you into municipal bonds or municipal bond funds, Treasuries or virtually anything tied to a fixed rate of return over the long term (certainly not annuities, etc.). If and when interest rates move up, these things will be slaughtered (and, may even become illiquid).

Instead, look to 5-year CDs. A 5-year CD paying 2.30% provides about twice what leading online savings rates are paying at the moment. Buying one with a 6-month early withdrawal fee, and reasonable certainty that the bank will honor it (read this article for more information on the risk to early withdrawal fees) will provide significant returns in today’s market and will also likely yield roughly about as much as an online savings account were you to redeem it early after, say, 12 months or a 1-year CD. Most important,, you will have the option to hold it for the remaining four years and continue to make 2.30%. And, equally importantly, you will not be slaughtered.

Key takeaway: Look at the early withdrawal fees on 5-Year CDs. While EverBank’s fees are excessive, other major online banks have early withdrawal fees geared to match between six months and 1 year of interest.

In sum, a number of 5-year CDs offered by leading FDIC-insured banks have 6 month early withdrawal options that provide the best and safest investment options for those who need steady and above-market interest rates.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Finworth, a division of InsBank 1-Year 5.38% APY with $50,000 minimum
TotalDirect, a division of City National Bank of Florida 1-Year 5.35% APY with $25,000 minimum
Rising Bank, a division of Midwest BankCentre 1-Year 5.31% APY with $1,000 minimum
Dollar Savings Direct, a division of Emigrant Bank 3-Year 5.00% APY with $1,000 minimum
M.Y. Safra Bank 3-Year 4.70% APY with $500 minimum
First Internet Bank of Indiana 3-Year 4.66% APY with $1,000 minimum
First Internet Bank of Indiana 5-Year 4.55% APY with $1,000 minimum
BMO Alto, a division of Bank of Montreal Harris 5-Year 4.50% APY with no minimum
Colorado Federal Savings Bank 5-Year 4.35% APY with $5,000 minimum

See More Online CD Rates →


  • Dave Torkin

    May 13, 2017

    Your article should be more specific. Ally is less than half a year early withdrawal. Barclays is half a year. Capital One 360 is half a year. These are OK - safe bets for the strategy you outline provided the rate were higher than it is today. Synchrony is now one year (I have no idea what it was earlier but it isn't relevant). CIT is one year. EverBank is a year and a half. Popular Direct and Goldman Sachs are two years! None of these work for this strategy!

  • Dave Torkin

    May 13, 2017

    Sorry, Goldman Sachs in one-year. I think one year is fair on a 5-year CD. CIT, Synchrony and Goldman Sachs are fair, but they don't work for your strategy. EverBank and Popular Direct are outrageous and you should counsel people to avoid.

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