bank rates

Don’t Be Tempted By Long-Term CD Rates

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.

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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Comments (6)
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6 Existing Comments
  1. William S said:
    on January 15th at 02:22 pm

    Excellent advice. Thanks!

  2. Mark C said:
    on January 16th at 08:24 am

    Bad advice. You can usually go for the longest term to lock in the highest rate, then break the CD if rates go up substantially. You will usually come out equal or better to the shorter term CDs yield, even with the penalty which is usually 6-9 months interest. Always run the numbers and don’t just accept advice like this at face value.

  3. KenBDG said:
    on January 16th at 09:49 pm

    As Mark C stated, you can often come out better with a longer term with a higher rate and breaking the CD if rates shoot up. But one important note is that early withdrawal penalties can vary considerably. Some 5yr CDs have only a 6mo penalty, but some have much higher penalties. Acacia’s 5yr CD is an example with an 18mo penalty.

  4. Steve said:
    on January 17th at 11:20 pm

    With the pathetic rates they are offering right now, I would be more inclined to invest my cash into collectibles that rapidly increase in value. Assuming you buy carefully, you will be able to at least get your full investment back (but a chance to make a nice profit) and you can sell the items without any time restrictions.

  5. Richard said:
    on January 21st at 05:07 pm

    Figure it out. If that 24 monther is earning the same interest rate or more in 2 years you could basically stay put until the market turns downward again or levels off, pay the penalty and then lock into a 7 year for a great rate. This is the same advice I once got from a tax accountant or a banker. They told me not to pay off my mortgage because of the tax advantages? What ever happened to common sense?? Not many are able to think for themselves!!

  6. Amir said:
    on March 2nd at 01:15 am

    As long as penalty is 6-9 month a long term CD with ~4% and at least ~2.5% higher than any 1 year CD is very attractive and is actually pretty liquid. You only loose if in the next 6-9 the rates spike sharply up – and while that happened before, it’s likely best to take the best rate right now. offers up to 4.06 right now for 7 years, though they don’t list the penalty. discover maybe the 2nd best right now with 3.7 and 9 month penalty for 10 years. found other credit unions/iras offering above 4, but those are not good for the general non IRA case.