bank rates

Rethinking My 3-Year CD Strategy

During the first half of 2011, I opened a slew of 3-year CDs.

Their weighted average interest rate was about 2% APY.

My expectation was that, with the January 2014 departure of Fed Chairman Ben Bernanke, I’d be able to renew or replace these CDs for another three years at the same or even higher yields.

I was wrong.

Today, the top 3-year rate shown on our CD Rates Leaderboard is 1.45% APY (Intervest National Bank). The highest 3-year rate at an institution at which I have one of these maturing CDs is 1.61% APY (Melrose Credit Union).

So, unwilling to permit my investment income to decline further, and committed to maximum investment safety, I’m channeling the maturing balances into 5-year CDs.

Fortunately, there are plenty of banks and credit unions around whose 5-year rates accommodate my current 2% target.

I already have accounts at many and room there for additional federal deposit insurance.

Thus, I recently moved all funds I had in maturing 2% APY 3-year CDs at OneWest Bank into a combination of 5-year CDs at Barclays Bank US (2.15%), Mountain America Credit Union (2.20%) and GE Capital Retail Bank (2.25%).

The balance of a jumbo 2% APY 3-year CD of mine at Nationwide Bank has also found a new home in a 5-year GECRB CD.

Is this a smart strategy?

Well, it’s the best I can come up with at the moment.

I’ve experienced relatively stable annual expenses, more than covered by my income, including CD interest. I’d like to keep it that way.

And, as I ponder the future – even as far as five years out – I see a Fed that will continue Bernanke’s policy fixation with ultra-low interest rates.

Hopefully, some really good deals will appear occasionally, like PenFed’s recent 3.04% APY 5-year CD promotion.

But I’m not going to park large sums in savings accounts, waiting for a CD yield bonanza to come along.

I confess, though, that I’m paying a bit more attention to early withdrawal penalties than I have in the past.

Although I still think reliance on early withdrawal rights provisions is unwise because institutions can change them without depositor consent, I nevertheless avoid banks and credit unions that are excessively punitive about early withdrawals.

There’s only one thing I really worry about:

That, five years hence, I’ll be reporting that I’m moving my then maturing 5-year CD balances into even longer-term CDs just to maintain a 2% yield.

That would be truly awful.

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Comments (3)
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3 Existing Comments
  1. Bill Briner said:
    on March 17th at 09:30 am

    Charles, I appreciate your comment about not sitting around waiting for CD rates to rise. I may regret it, but I bought a ladder of 7 to 10-year CD’s averaging 3.3% and U.S. Government agency bonds (Federal Home Loan Banks, TVA, etc.) maturing in 11 to 19 years averaging a little over 4% when my 5-yeart CD’s matured in October 2013. These are paying interest each month and I’ll either withdraw or reinvest the interest. If interest rates take off, this may turn out to be a bad decision, but I decided to earn 3.3 to 4.7% rather than 2% and see how it works out. Good luck — you may have the better strategy.

  2. Charles Rechlin said:
    on March 17th at 11:50 am


    Within the last couple of months, I bought a 10-year Federal Farm Credit Bank Bond for a taxable account (I posted about this) and a 10-year GE Capital Bank CD for an IRA account. Both were small transactions, however. I haven’t been able to break out of the federally-insured 5-year CD pattern for larger amounts, but I’m always tempted when I find myself with a maturing CD. Plus, I personally don’t have the discipline needed to ladder.
    This will be my “strategy” until, as I wrote, something better comes along.

  3. Denise said:
    on March 25th at 07:27 am

    Thanks for the stategy. Seems like the penalties for early withdrawal have gone from 90 days to 365 now. Unfortunately, our society does not encourage saving, only borrowing. How do we get our children to save when there is no incentive to save.