Banks are finally reacting to long-term stagnant certificate of deposit rates, perhaps realizing that the investors who have abandoned CDs due to meager interest rates may take a long time — if ever — to come back.
That’s why we’re seeing more and more banks are offering slightly higher interest rates on longer-term CDs. Take Alliance Bank (Stock Quote: ALLB) and EBSB Direct, which are offering three-year CD rates at 2.75%. Or how about Everbank, which is touting a 3.3% APY on its signature five-year CD. Smaller banks are getting into the act, too. New York-based Flushing National Bank has a five-year CD with a 3.15% APY.
It seems that the magic number is 3% — that appears to be the level where bank marketers figure fence-sitting CD investors will climb down and lock in a 3% return for up to five years. Investors, of course, are free to take advantage of these higher-rate deals, but know that you’ll be locking in your money for a long time, and won’t be able to take advantage of even higher rates if the economy improves and interest rates rise, as most economists expect. Plus, you’ll likely be paying taxes on your gains, as well.
Remember, a key rule of thumb on CD investing is to lock in long-term rates when the market is at the top, not at the bottom where it is now. If you’re unsure about whether to lock in to a longer term CD right now, at least take the time to review a few good bank rewards checking deals. There you might find some competitive rates, as well as more flexibility and liquidity than you might find with long-term bank CDs. Start that process at BankingMyWay’s Interest Checking Rate Search.
Outside of long-term CD trends, the key economic metric we’re watching this week is the 10-year Treasury bond. So far in 2010, the 10-near note has been flirting with the 4% level (it’s at 3.76% today) — and that’s up moderately from the beginning of the year. Keep your eye on Treasuries if you’re thinking of jumping into the CD pool. Any big jump in the 10-year U.S. note should mean an uptick in CD rates pretty much across the board.