Finding a safe place to park extra cash that actually pays you some interest has been a challenge for more than a decade.
With central banks keeping rates low to stimulate or protect economic activity for most of the past decade, getting something for your money has been difficult.
For years, bank certificates of deposit were Wall Street’s version of unused books gathering dust on shelves with little or no demand.
2021 and 2022 have changed that equation, as rising interest rates have lit a fire under the bank CD market, where 3.5%-to-4% yields are common in the fruiting fields.
Take Seattle-based Verity Credit Union, which has launched its own CD special program, with interest rates up to 3.5% — with no minimum deposit and NCUA insured up to $250,000.
or about how capital one, Who just raised its Performance 360 Savings Account to 3.0% and its one-year 360 Certificate of Deposit rate to 4.0%?
They are not alone.
Merrick Bank, Banesco US, and BMO have one-year CD packages with rates ranging from 3.75% to 4.0%.
“When bank CDs are paying competitive rates, they are an excellent part of a fixed allocation in a portfolio,” said Devin Carroll, owner of Carroll Advisory Group. “Many investors have seen their “safe money” held in bond funds decline as much as, or even more than, their stock funds.”
However, “now, with bank CDs, there is an opportunity to earn interest with almost no risk of seeing principal decline,” Carroll noted.
Increasing cash accounts
Why are bank CDs generating so much interest?
“Consumers are looking to CDs for a number of reasons: higher savings, weaker stock market returns, and higher yields,” said Derek M., senior financial advisor at StrategicPoint Investment Advisors. Amy said. “As recently as August, Bank of America’s “Consumer Checkpoint” continued to show consumers increasing levels of cash in their checking and savings accounts. Consumers are wisely looking to increase the yield on the cash they’re sitting on.”
If the stock market had performed better in 2022, it’s doubtful Amey would have invested some of that extra cash.
“However, given the lackluster returns in the market so far this year, and the scary headlines surrounding a possible recession, we believe investors are seeking protection against risk,” he said. “CD rates, over any number of time frames, have reached levels not seen in a decade. In fact, consumers only have to look back as far as 2007, before the Great Financial Crisis, to find CD rates as high as they 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, attracting the attention of many people who would never have considered a CD before,” said Frank Trotter, president of Battle Financial. “Now with one-year yields near 4% and five-year yields in the 4.50% range, CD rates are more reasonable. This is especially the case with many big-box banks paying less with no interest on checking and savings, making these rates seem more attractive to investors. “
Tips for snagging the best CD deals
Getting CDs at high rates is low-hanging fruit these days.
“There are a ton 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 consideration Amey recommends is to check your existing CD rates.
“It may make sense to break up your existing CDs and reinvest,” he said. “Even if people who buy multi-year CDs in 2020 and 2021 pay a penalty to break their current CD, they may more than recoup that penalty because rates rise so quickly.”
Additionally, think about whether you will need all, or a portion of, the cash before the CD matures.
“This will help you decide on your deposit amount and the amount of time you’re willing to let your money go,” Trotter said.
Also, make sure to shop around.
“Just this morning I saw more than a 1.50% difference between banks in CD rates,” added Trotter. “Before you buy a CD, be sure to read the details – sometimes you have to make other deposits or other actions to get to the advertised rate.”