NEW YORK (TheStreet) -- Hey, have I got a deal for you! A CD that pays five times the average! That's especially appealing in today's tricky savings environment, with rates still pretty low but likely to rise.
Actually, outsized yields are not as rare as you might think. There are often a few banks hungry enough for deposits to pay premium rates, so shopping around pays. Today, a few moments spent on Bankingmyway.com's search tool will unearth a number of 12-month CDs yielding around 1%, versus a national average of 0.198%.
So what's the best CD strategy when rates are expected to rise?
The first impulse -- to avoid tying your money up for too long -- probably makes sense. The average five-year CD pays a measly 0.746%. You'd kick yourself for locking your money up at that rate if newer CDs were more generous in a year or two.
On the other hand, it doesn't seem likely that yields will rise substantially in the next year or so. The Federal Reserve, which has a lot of influence over short-term rates, has said it probably won't start the rate-raising process until 2015. So it might be worth it to commit to a 12-month CD rather than keep spare cash in a checking, savings or money-market account paying just about nothing.
But it's also important to avoid fixating on rates and to look at actual dollars. On a $10,000 deposit, a 1% yield on a 12-month CD will pay $100 a year. The most generous three-month CDs pay only 0.35% to 0.5%. Yes, that's substantially less on a percentage basis, but is an extra $50 earnings on a $10,000 deposit really enough for tying your money up for an extra six months?