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6-percent CDs: Lock Them Up
By LAURA BRUCE
The days of ever-rising certificate of deposit yields might be waning. But CDs offering 6 percent have surfaced, and this may be the time to lock in, what is by most standards, a very good return.
Usually, you'll need to look locally for institutions offering 6 percent. As of this writing, Bankrate's list of highest-yielding CDs doesn't have any topping the 6-percent level. That may be due to, among other things, Bankrate's requirement that CDs on the highest-yield list must be available nationwide. Many of the institutions we spoke with only offer their CDs locally.
Consumers are hunting down these high-yielding CDs and snapping them up.
USE Credit Union in San Diego took in $25 million in new deposits in July with two wildly popular CDs. One is a seven-month, 7-percent CD with a minimum/maximum deposit requirement of $2,500, and the other is an 18-month CD at 6 percent, which has now been reduced to 5.75 percent.
"It's more popular than we thought it would be. More people were grabbing the 6 percent for 18 months, but a good 20 percent of the people are coming in for the 7-percent CD," says Kevin Moyle, assistant vice president. "It tells me that the smart money is looking at the risk in the stock market, and they're saying if I can get a guaranteed 6 percent or 7 percent I'll take a portion of my net worth and invest it."
Investors must qualify for credit union membership, which is limited to people who live or work in five California counties where USE does business.
Many 6-percent CDs are for shorter terms, such as one year or 18 months, but if you'd like to count on getting 6 percent on your money for five years, you can.
Chicago's First Bank of Highland Park has a five-year CD at 6 percent, available in Chicago only, for a $5,000 minimum deposit. Executive Vice President Joseph Zaccari says savers who are holding out for 7 percent may be a bit too optimistic.
"I think people are thinking they can get a higher rate. We're probably reaching a point where we're getting a top -- maybe not 6 percent, maybe 6.5 percent, it's hard to say. But I think 7 percent is a reach, and people should think long and hard about 6 percent. It won't last forever."
New Jersey residents and people living in nearby eastern Pennsylvania had a brief opportunity to sock away a 6-percent CD for five years with a minimum deposit of $1,000 at Roma Bank in Robbinsville, N.J. But the offer was recently pulled when the Fed didn't raise rates for the first time in two years.
When it comes to fixed-income investments, 5 percent appears to be the level where many people take notice.
"At 5 percent you're competing with top-quality municipal bonds," says Martin Mesecke, certified financial planner and president of Self Worth Financial Planning in Plano, Texas.
"You have to look at the purpose of the CD; is it to preserve capital or to spin off an income stream? If I had a choice between a one-year CD and a five-year CD, both at 6 percent, I'd buy both. We have our clients keep a reserve of a year to 18 months in cash, and this is a perfect vehicle for that. And also consider it for an investment in the portfolio. (At these yields) it has long- and short-term merits. People have to look at what they're trying to accomplish."
In addition to banks and credit unions, many brokerages offer high-yielding CDs. Brokerages typically carry CDs that are being offered by banks across the country. It's an easy way for customers to buy CDs at top rates from multiple institutions without having to open individual accounts at each bank.
Peter Crawford, vice president of brokerage products at Charles Schwab, says the firm recently listed a 6-percent, five-year CD that sold out quickly. But other than that offering, which was the first five-year CD at that yield, customers are sticking with shorter maturities.
"Clients are scooping up the three-month CDs but haven't demonstrated the interest yet in the five-year. (For the most part) there's only about a 30-basis-point difference between them. But as we get above 5 percent, a lot of money is moving into CDs."
As the Federal Reserve ceases raising short-term rates, expect to see yields on short-term CDs shrink. Banks, which have been stymied by the flat yield curve, will likely try to push consumers toward longer-term CDs, so you may see an increase in five-year CDs at the 6-percent level or better. But, as has been mentioned, don't sit on the fence too long waiting for 7 percent. It may come, but you could be passing up a very worthwhile return in the interim.
By LAURA BRUCE
The days of ever-rising certificate of deposit yields might be waning. But CDs offering 6 percent have surfaced, and this may be the time to lock in, what is by most standards, a very good return.
Usually, you'll need to look locally for institutions offering 6 percent. As of this writing, Bankrate's list of highest-yielding CDs doesn't have any topping the 6-percent level. That may be due to, among other things, Bankrate's requirement that CDs on the highest-yield list must be available nationwide. Many of the institutions we spoke with only offer their CDs locally.
Consumers are hunting down these high-yielding CDs and snapping them up.
USE Credit Union in San Diego took in $25 million in new deposits in July with two wildly popular CDs. One is a seven-month, 7-percent CD with a minimum/maximum deposit requirement of $2,500, and the other is an 18-month CD at 6 percent, which has now been reduced to 5.75 percent.
"It's more popular than we thought it would be. More people were grabbing the 6 percent for 18 months, but a good 20 percent of the people are coming in for the 7-percent CD," says Kevin Moyle, assistant vice president. "It tells me that the smart money is looking at the risk in the stock market, and they're saying if I can get a guaranteed 6 percent or 7 percent I'll take a portion of my net worth and invest it."
Investors must qualify for credit union membership, which is limited to people who live or work in five California counties where USE does business.
Many 6-percent CDs are for shorter terms, such as one year or 18 months, but if you'd like to count on getting 6 percent on your money for five years, you can.
Chicago's First Bank of Highland Park has a five-year CD at 6 percent, available in Chicago only, for a $5,000 minimum deposit. Executive Vice President Joseph Zaccari says savers who are holding out for 7 percent may be a bit too optimistic.
"I think people are thinking they can get a higher rate. We're probably reaching a point where we're getting a top -- maybe not 6 percent, maybe 6.5 percent, it's hard to say. But I think 7 percent is a reach, and people should think long and hard about 6 percent. It won't last forever."
New Jersey residents and people living in nearby eastern Pennsylvania had a brief opportunity to sock away a 6-percent CD for five years with a minimum deposit of $1,000 at Roma Bank in Robbinsville, N.J. But the offer was recently pulled when the Fed didn't raise rates for the first time in two years.
When it comes to fixed-income investments, 5 percent appears to be the level where many people take notice.
"At 5 percent you're competing with top-quality municipal bonds," says Martin Mesecke, certified financial planner and president of Self Worth Financial Planning in Plano, Texas.
"You have to look at the purpose of the CD; is it to preserve capital or to spin off an income stream? If I had a choice between a one-year CD and a five-year CD, both at 6 percent, I'd buy both. We have our clients keep a reserve of a year to 18 months in cash, and this is a perfect vehicle for that. And also consider it for an investment in the portfolio. (At these yields) it has long- and short-term merits. People have to look at what they're trying to accomplish."
In addition to banks and credit unions, many brokerages offer high-yielding CDs. Brokerages typically carry CDs that are being offered by banks across the country. It's an easy way for customers to buy CDs at top rates from multiple institutions without having to open individual accounts at each bank.
Peter Crawford, vice president of brokerage products at Charles Schwab, says the firm recently listed a 6-percent, five-year CD that sold out quickly. But other than that offering, which was the first five-year CD at that yield, customers are sticking with shorter maturities.
"Clients are scooping up the three-month CDs but haven't demonstrated the interest yet in the five-year. (For the most part) there's only about a 30-basis-point difference between them. But as we get above 5 percent, a lot of money is moving into CDs."
As the Federal Reserve ceases raising short-term rates, expect to see yields on short-term CDs shrink. Banks, which have been stymied by the flat yield curve, will likely try to push consumers toward longer-term CDs, so you may see an increase in five-year CDs at the 6-percent level or better. But, as has been mentioned, don't sit on the fence too long waiting for 7 percent. It may come, but you could be passing up a very worthwhile return in the interim.
