cd question

[cullenbryant]

got a renewal for an 18 month cd in the mail. noticed the rate at only .5%

i'll confess to just letting the thing ride over the years, and not reading the mail properly, but that low amount of interest caught my eye given that I know rates are a little higher than they used to be.

so i called. 6 month cd's are at almost 5%. she said if i let it just sit and roll over at an 18 month, it would be even lower rate than the .5

how is this the case?

[clw54]

Like half a percent? They're over 5 now, at least for shorter terms. Ten times the return.

[cullenbryant]

yeah, she said if i changed the product to 6 months it was almost 5%

how is it that if you tie up your money for a full 18 months that the rate drops so severely?

[clw54]

I dunno. Over five percent is easy to get nowadays. CDs, T-bills, funds where one share is a dollar.

[cullenbryant]

I've got time to change it, but it's a small window of 10 days beginning in late may, so in meantime, there will be a giant not forget paper on the fridge.


I guess i understand the banks position that whatever rate they give for 18 month, they will be obligated to provide for the entire term. But... given the disparity, I don't see how it wouldn't make sense to bump it to at least a couple or few percent with the others at 5.

.5 and sinking for 18 month says something that i do not comprehend about economics, i guess

[ddbird]

Past 12 months it become too hard to predict and they don't want to be caught if interest rates tank.

But an 18 month should still be about 4.75% currently. Personally my CDs are yearly and re-evaluated each year before renewal. That 0.5% is really a kick in the balls and unfortuantely some people get locked in at that price which is bull Elmo.

I'd move my money to bank that has a little more ethics as it seems like they are trying to catch people not paying attention- Live Oak currently has 5% for yearly and 4.75% for 18 month - 2% for anything past that.

[HappyLittleTrees]

yeah, she said if i changed the product to 6 months it was almost 5%

how is it that if you tie up your money for a full 18 months that the rate drops so severely?

Too much risk for the banks.

I noticed this inversion last year when I helped my mom open a big CD.

[meos1]

yeah, she said if i changed the product to 6 months it was almost 5%

how is it that if you tie up your money for a full 18 months that the rate drops so severely?

They are pricing in the rate reset from the FED.

[meos1]

CD are a suckers game. You get 5% on your money while the inflation is reported at 7+? No way. I am not interested.

[flaminio]

how is this the case?

Cause people don't read their prospectuses?

Maybe your government can step in and regulate this. That'll fix it, for sure.

[FatMan]

CB, I am guessing you are with a big bank like BOA or Wells Fargo. Their CD rates suck nowadays. You will get much better rates with local and regional banks. The best are usually with online banks.

CD rates, as with all rates are upside down with short term being higher than long term. Same with treasuries. The sweet spot right now is about 2 years. Be careful with longer terms as some of these clowns are now offering callable cd's where the bank can call the cd if the rates go lower.

Here's a link with some better rates:

https://www.nerdwallet.com/best/banking/cd-rates

It is pretty easy to open the account and have the funds transferred directly from your current account.

Another way is to open a brokerage account at Schwab, Fidelity, etc. where they offer brokerage bank cds. Very easy to use. Only issue here is if you need your money before the term is up you have to sell on the open secondary market and if rates have risen you will pay the price. On the other hand if rates fall you will make a gain. Just like with bonds. Most local bank cds just penalize you like 3 or 6 months of interest.

[cullenbryant]

appreciate the info. it is a small town savings and loan. once i switch terms i can live with the return. i agree on cd's or any of it aren't really my thing or fun. not that anything else i can do keeps up with inflation, but at least when it is in your hand you get to enjoy or look at.
but i leave them there so that when i have a hot deal i can make a phone call.

[cullenbryant]

Past 12 months it become too hard to predict and they don't want to be caught if interest rates tank.

But an 18 month should still be about 4.75% currently. Personally my CDs are yearly and re-evaluated each year before renewal. That 0.5% is really a kick in the balls and unfortuantely some people get locked in at that price which is bull Elmo.

I'd move my money to bank that has a little more ethics as it seems like they are trying to catch people not paying attention- Live Oak currently has 5% for yearly and 4.75% for 18 month - 2% for anything past that.

you're right. i just looked and several banks are paying between 4 and 5% for 18 month. so this was indeed a fade hoping people don't pay attention to the maturity papers. although, her quoted rates were even lower than the .5 i had was at. so i don't understand that part of the angle other than possibly a lot of older customers who took out the longest termed ones decades ago and have let them roll ever since

[FatMan]

CD are a suckers game. You get 5% on your money while the inflation is reported at 7+? No way. I am not interested.

It is all about risk profile. CDs have their place. For people who need their money in one or two years the market can be a risky game. It would not surprise me to see a market drop of 20% in the next year or two. And that could be catastrophic for some. CDs are a stupid play for those with a 5+ year horizon.

[ddbird]

CD are a suckers game. You get 5% on your money while the inflation is reported at 7+? No way. I am not interested.

It is all about risk profile. CDs have their place. For people who need their money in one or two years the market can be a risky game. It would not surprise me to see a market drop of 20% in the next year or two. And that could be catastrophic for some. CDs are a stupid play for those with a 5+ year horizon.

This. Only money that has plans in the next few years are in CDs. But a guaranteed 5% for short term is nothing to poo poo

[Barndog]

Synchrony does 4.75% for a savings account. No six month commitment

[PerryHall]

Synchrony does 4.75% for a savings account. No six month commitment

Is it FDIC insured?

[clw54]

CD are a suckers game. You get 5% on your money while the inflation is reported at 7+? No way. I am not interested.

It is all about risk profile. CDs have their place. For people who need their money in one or two years the market can be a risky game. It would not surprise me to see a market drop of 20% in the next year or two. And that could be catastrophic for some. CDs are a stupid play for those with a 5+ year horizon.

This. Only money that has plans in the next few years are in CDs. But a guaranteed 5% for short term is nothing to poo poo

Four week T-bills pay over 5% and there's no state tax.

[Barndog]

Synchrony does 4.75% for a savings account. No six month commitment

Is it FDIC insured?

of course.

[Rollo Tomassi]

I sold seondary cds for a while at Schwab.