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 keeping rates low to boost or protect economic activity for most of the past decade, it’s been hard to get bang for your buck.
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 changed that equation, as rising interest rates lit a fire under the bank CD market, where 3.5%-to-4% yields are common across the fertile plains.
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 are you? capital one, which recently boosted its Performance 360 savings account to 3.0% and raised its one-year 360 certificate of deposit rate to 4.0%?
They are 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 Devin Carroll, owner of Carroll Advisory Group. “Many investors have seen their “safe money” held in bond funds decline as much, or even further, than their stock funds.”
But, “now, with bank CDs, there’s the opportunity to earn interest with almost no risk of seeing a principal decrease,” Carroll noted.
Increase cash accounts
Why are bank CDs generating so much interest right now?
“Consumers are looking more and more to CDs for a host of reasons: increased savings, weak 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 increased levels of cash in their checking and savings accounts. Consumers are wisely looking to boost the return on the cash they’re sitting on.”
If the stock market had performed better in 2022, Amey suspects some of that excess cash would have been invested.
“However, with the poor returns in the market so far this year, and scary news about a potential recession, we believe investors are looking for safety over risk,” he noted. “CD rates, across a myriad of time frames, are reaching levels not seen in more than a decade. In fact, consumers would have to look as far back as 2007, before the Great Financial Crisis, to find CD rates this high than they are now.”
Other investment professionals say they are seeing more CDs with rates of 4% or more.
“We’ve seen a sharp increase in rates over the past six months, which has caught the attention of many individuals 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 large banks paying low to no interest on checking and savings, these rates seem more attractive to investors.”
Tips for getting the best CD deals
Getting CDs with higher rates is low-hanging fruit these days.
“There are a bunch of different websites now that will help consumers compare CDs,” Amey told TheStreet. “Some have screeners where you select the type of CD you’re looking for and the length of time you’re considering.”
One other idea Amey recommended is to research your existing CD rates.
“It might make sense to break your existing CD and then reinvest,” he said. “People who bought multi-year CDs in 2020 and 2021 may find that even after paying the penalty to break their current CD, they can more than recoup that penalty since rates have risen so quickly.”
Also consider whether you will need all or part of the cash before the CD expires.
“This will help you decide on the amount of your deposit and the amount of time you are willing to let your money go,” Trotter said.
Also, be 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, read the details – sometimes you have to make other deposits or another task to reach the advertised rate.”