Markets Go Berserk on Brexit; 1 Year CDs May Offer Some Cover

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This may be a prudent time to shift money from cash to one-year CDs.

In the aftermath of the surprise Brexit vote, global equities fell off a cliff for two days, followed by a sharp and pronounced moved to new highs due to global central bank stimulus. Still the UK faces a difficult economic future resulting from a long period of uncertainty, followed by a transitional period to a more restrictive environment where goods and capital will not be able to move as freely with its largest trading partners. This will certainly lead to a recession (or depression) there, and consequently lower demand from 60 million English-speaking consumers of products and services produced by US corporations. Europe, too, faces a hit of ½ of 1% to its GDP over the next three years, according to Mario Draghi. To boot, whatever demand continues to come from the UK and Europe is already at a significantly lower price point as a result of a currency exchange rates that have moved sharply against the dollar. US equity markets are priced for perfection and for strong growth, and those valuations may not be sustainable.

The same central bank action that caused a snap-back rally in US equities caused a rush to US Treasuries (where the 10 and 30 year bonds have hit all time new lows in yield) and gold (which is well off its high of several years ago, but up dramatically). It is very possible that US rates will continue to decline over the short and even intermediate term. (I now believe, like many, that the Fed cannot continue with its objective of normalizing US interest rates, as such action would cause still more strength in the dollar versus the Euro and British pound.) Savings rates could actually decline.

Although not sexy and not where you want to have all – or even most – of your capital, 1-year certificates of deposit offer protection here. BestCashCow’s list of CDs show that at least five online banks still offer 1-year CD rates at or above 1.25%. Local bank and credit union rates may be higher (you can check those rates here). While there may be an opportunity cost to locking up your money, the worst-case scenario of investing in a 1-year CD is that you get it back in a year.

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.

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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Northern Bank Direct 1-Year 5.60% APY with $500 minimum
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
Dollar Savings Direct, a division of Emigrant Bank 3-Year 5.00% APY with $1,000 minimum
First Internet Bank of Indiana 3-Year 4.66% APY with $1,000 minimum
IncredibleBank 3-Year 4.58% 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
Department of Commerce 5-Year 4.34% APY with $500 minimum

See More Online CD Rates →


  • John

    July 07, 2016

    Sounds right!

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