High Bank CD Interest Rate Information
Article Summaries
Peer-to-Peer Lending - An Alternative to CDs
Returns on cash are getting hit hard as interest rates decline seemingly every week. With the explosion of the internet age, a new investment opportunity called peer-to-peer lending has emerged that offers a compelling alternative to investing in CD's, savings accounts, and money market funds...More
Online Banking, Is It Safe?
Before going to far, I would like to make it clear that I believe banking online is safe assuming the following are true: 1) the web site uses 128-Bit SSL encryption 2) the bank or credit union is verified to be federally insured 3) the bank or credit union follows appropriate CIP procedures and 4) the staff is approachable, easy to work with, takes time to answer your questions and concerns, and handles your info with care...More
Did You Know That IRAs Can Hold CDs?
If you are nearing retirement and are tired of fretting over your nest egg, your highest and safest return may be with a federally insured bank (FDIC) or credit union (NCUA) CD...More
What Is the Correct CD Interest Rate?
An interesting question to be sure. Naturally, when investing funds into Certificates of Deposit (CDs), you want to know how much you are going to earn. If you are receiving your funds monthly, then the APR (Annual Percentage Rate) is what you are interested in. If you are allowing the interest to compound, the APY (Annual Percentage Yield) is what is important to you. And what about the rate for zero-coupon or discounted CDs?...More
Maximize CD Interest Rates During a Flat and Inverted Yield Curve
By Chris Duncan - March 2006
If you want an investment that maintains your principal, a Certificate of Deposit (CD) is a great way to go. As with most investments, we all hope to time the market at its highest, but without a crystal ball that proves to be difficult. The best advice is to create a ladder of different maturity dates and then maintain that ladder.
The temptation in a flat or inverted yield curve environment is to go short. However, this can be disastrous if rates drop considerably. For instance, if you invest all of your funds in 6-month CDs because short-term rates are projected to rise your entire portfolio may be in for a surprise if the commentators are wrong.
Let's first assume they are right. By March, Fed Funds will be 4.75% and by May 5.00%. You can purchase a 6-Month CD today with a rate of 4.95%. If rates hold after May, when the CD matures in August you may be able to earn 5.20%. This could be higher if inflation starts to be a worry and more increases come. When August comes around, you are celebrating because your portfolio will re-price with higher CD rates.
Okay, now if they are wrong and the economy takes a down turn. Rates rise in March, but they hold in May. By the time August comes around, the FOMC needs to lower rates to spur the economy once again. As a result your portfolio re-prices lower.
However, there is any easy solution to this dilemma. Build a laddered portfolio! Generally, CD investors are paid a premium for opening longer-term accounts. With a normal sloped curve, longer-term CDs (5-Year to 10-Year) generally pay 50 Basis Points to 150 Basis Points (0.5% to 1.5%) more than shorter term CDs (6-Month to 1-Year). For a $100,000 investment, this is $500 to $1500 more a year. For $1MM, this is $5,000 to $15,000 more. And taking this out for five years, that could be $75,000 more in your pocket.
Now is a perfect time to build your certificate of deposit ladder. You can be somewhat confident that in the short-term rates will rise and you will probably be able to take advantage of some higher rates. The added bonus is that you know a 5% return over any length of time is a good return and investing long protects against the ups and downs that are coming.
