Some thought that interest rates for savers had become extinct, gone for all time. Data from the Federal Reserve Bank shows that one year bank CD rates fell below 1% in 2009. Since then, we have often characterized short term interest rates as being zero-point-nothing. (Obviously, we exaggerated. But not by much.)
When rates were next to nothing, it did not matter much where you got them. But with rates moving up, it may pay to shop around.
The good news is, FDIC insured bank certificates of deposit are at the highest interest rates in years. U.S. Treasury securities are also at multi-year highs. We are making these kinds of opportunities available to you for your options. Interest rates vary from institution to institution; we have offerings from many national banks available through LPL Financial.
There are some size limitations, and some real advantages for larger accounts. FDIC insurance basically covers $250,000 per person, per institution. For example, by using four different issuing banks, we can obtain $1 million of coverage within a single LPL Financial account. See www.fdic.gov for more information.
People understand interest rates very well—higher is better than lower. But choosing maturity dates is a little trickier. When interest rates peaked in the 1980’s, many people were buying six month bank CD’s at 12 or 14%. At the same time, ten and twenty year U.S. treasury bonds were also paying double digit rates.
The CD owners saw rates fall at the end of six months. They could renew only at lower rates as market interest rates got cut in half, and cut in half again in the following years. But the long-term bond owner continued to reap the double-digit returns for many years.
On the other hand, people buying long term U.S. treasury bonds at low rates as recently as 2016 are now stuck with below-market rates since rates went up after the bonds were issued.
We can’t know the future, but we can talk to you about our thoughts and offerings in the interest rate arena. Clients, please email us or call if you would like to talk about this or any other topic.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
CD’s are FDIC Insured and offer a fixed rate of return if held to maturity.
Government bonds and Treasury bills may or may
not offer an equivalent degree of safety. Alternative investments to CDs may fluctuate with market conditions, so that upon sale
an investor may receive more or less than the original investment.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.