Finding a safe place to park excess cash that actually pays you some interest has been a challenge for more than a decade.
With central banks holding rates down to boost or protect economic activity for most of the past decade, it’s been hard to get your money’s worth.
For years, bank certificates of deposit were Wall Street’s version of unused books gathering dust on the shelf with little or no demand.
2021 and 2022 have changed the equation, as rising interest rates have lit a fire under the Bank of China market, where 3.5%-to-4% returns are crossing the fruit plains everyday.
Take Seattle-based Verity Credit Union, which launched its CD Specials program, with interest rates up to 3.5% — with no minimum deposit and NCUA insured up to $250,000.
Or how about capital one, Who recently jacked up his Performance 360 savings account to 3.0% and raised his one-year 360 certificate of deposit rate to 4.0%?
They’re not alone.
Merrick Bank, Banesco US and BMO all have one-year CD packages with rates ranging from 3.75% to 4.0%.
“When bank CDs pay a competitive rate, they are an excellent part of the fixed allocation in a portfolio,” said Carroll Advisory Group owner Devin Carroll. “Many investors have watched as their “safe money” held in bond funds has declined as far, or even more, than their stock funds.”
However, “now, with bank CDs, there is the opportunity to earn interest with almost no risk of seeing a major decline,” Carroll notes.
Increase cash accounts
Why are bank CDs generating so much interest right now?
“Consumers are looking more and more to CDs for a number of reasons: elevated savings, poor stock market returns and higher yields,” said StrategicPoint Investment Advisors Senior Financial Advisor Derek M. Amey. “As recently as August, Bank of America’s “Consumer Checkpoint” continued to show consumers have elevated levels of cash in their checking and savings accounts. Consumers are wisely looking to boost the yield on the cash they’re sitting on.
If the stock market were to perform better in 2022, Amey suspects that some of the excess money would be invested.
“However, with the poor returns in the market so far this year, and scary headlines around a potential recession, we believe that investors are looking for safety over risk,” he noted. “CD rates, across any myriad of time frames, are reaching levels not seen in over a decade. In fact, consumers would have to look as far back as 2007, before the Great Financial Crisis, to find CD rates as high as they are are now
Other investment professionals say they are seeing more CDs offering rates of 4% or more.
“We’ve seen a sharp increase in rates over the last six months, catching the attention of many people who would never have considered a CD before,” said Battle Financial president Frank Trotter. “Now with one-year yields near 4% and five-year yields in the 4.50% range, CD rates are more substantial. This is especially the case with many big-box banks paying low to no interest on checking and savings, The rates look more attractive for investors.
Tips for getting the best CD deals
Getting CDS at higher rates is low-hanging fruit these days.
“There are a lot of different websites that will now help consumers comparison shop for CDs,” Amey told TheStreet. “Some have screeners where you choose the type of CD you’re looking for and the length of time you’re considering.”
Another idea that Amey recommended is to examine your existing CD rates.
“It might make sense to break your existing CD and then reinvest,” he said. “People who purchased multi-year CDs in 2020 and 2021 may find that even after paying the penalty to break their current CD, they may more than recoup the penalty since rates have increased so quickly.”
In addition, think about whether you will need all or part of the money before the CD matures.
“This will help you determine the amount of your deposit and the amount of time you are willing to let your money go,” Trotter said.
Also, make sure to shop around.
“Just this morning I saw over 1.50% difference between banks in CD rates,” Trotter added. “Before you buy a CD, be sure to read the details – sometimes you have to make other deposits or some other work to reach the advertised rate.”