Some Dreadful Advice About Short-Term CDs

Forbes, the financial magazine that had been deceived for decades into believing that Donald Trump was a billionaire, is running an interesting advertisement on LinkedIn, Twitter and Facebook this morning.

They are encouraging social-media users to consider a 3-month CD in lieu of keeping their money in savings accounts.   The advertisement posits that 3-month CDs are a great way to lock-in a short-term rate without locking up cash for a long period.    Those clicking through the ad to the Forbes website will land on a page of Forbes.com that lists several 3-month CD rates with the highest paying 0.20% APY.   The best current online savings rates are currently 0.70%, and locally available savings rates are a little higher in some markets (check local savings rates where you live here).

One-year CDs and even six-month CDs have in fact been a great way to secure interest payments going forward in an environment where interest rates are falling.   Through my use of the BestCashCow tables I have been fortunate to still have CDs that are paying close to 2% that don’t come due until the summer.    If you believe that savings rates will continue to decline through 2021, and do not require immediate liquidity, you would put some of your cash into these instruments where you can lock in 0.60% to 0.70% through the remainder of the year.

3-month CDs, however, never pay much of a premium above the prevailing savings rate.  In the current environment, they are paying a whole lot less.   In fact, you would have to believe that all online savings rates are going to go to zero (or that you will be paying the bank to hold your money) within the next month to make locking into a 3-month CD rate at 0.20% even remotely worthwhile.   With the 10-year US Treasury rate now firmly back above 1%, that is absolutely not a bet to make.

Online savings rates have performed very poorly versus a lot of competing places for your money.   But, one thing they are guaranteed to do is to outperform is 3-month CDs.