Going longer to find a better return than the truly pathetic short-term CD rates banks are currently offering is probably not the right move.
We understand that any certificate of deposit paying 3% or more can look very good right now.
That’s a full point more than the top-paying 12-month CDs, and a half-point better than the best 24-month CD rates.
But you have to tie your money up for a very long time to earn 3% or more.
Only a handful of banks are paying that much on 4-year CDs.
National Bank of Kansas City, for example, is offering 3.03% APY and
Capital One Direct 3.00% APY, with $5,000 minimum deposits.
Most savers who want to earn 3% or more must commit to 5-year CDs, such as the one being offered by Acacia Federal Savings Bank in Church Falls, Va. for 3.40% APY with a $500 minimum deposit.
If you try and take advantage of these rates, you’re buying long at the bottom of a rate cycle, with interest rates about as low as they’ll probably go.
That’s the opposite of what savers usually want to do, which is to buy long at the top of a rate cycle to lock in the best possible return as rates are beginning to fall.
Most economists expect the Federal Reserve will stop driving interest rates to record lows sometime this year — June is often mentioned as a good bet for the turnaround to begin.
When that happens, CD rates will begin a slow but steady climb back to more normal and rational, market-based levels.
You certainly don’t want to be holding a 48-month CD at 3.0% when two years from now a 24-month certificate could be paying that much or more.
An economist friend of ours suggested that a good strategy for making top dollar over the next three years is to buy the best-paying 12-month CD you can get right now and then a year from now buy the highest-paying 24-month CD available. Your yield over the next three years will likely top what you could earn on a 36-month certificate.
You can compare CD rates from dozens of banks in our extensive database.
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