6% 24-Month CD at a California CU (Variable)

Telesis Credit Union is offering a special variable type of 24-month certificate of deposit. The APY is 6% for the first 6 months. Then the rate reprices to the current Federal Funds rate. The minimum to open is $2.5K and the maximum is $500K. It requires new funds.

This Southern California credit union has offices in Ventura County, Santa Clarita, and the San Fernando Valley. Field of membership applies to above residency, plus various employers across the country. The credit union is NCUA insured with $576 million in assets and 37,000 members.

Credit for this find goes to Carol who mentioned it in the finding deals post. Thanks!

Future Federal Funds Rates and the Average Return on This CD?

Since the rate on this Telesis CD after the first 6 months depends on the Federal Funds rate, you'll have to factor the future funds rate into the decision about if this CD is a good deal. The future FOMC meetings in the next 6 months will be on May 10th, June 28th, August 8th, September 20th and October 24th. It's widely expected that the Fed will raise the intended federal funds rate to 5% in May. After that, there's less certainty. I think there's a chance for at least 1 or 2 additional rate hikes. So based on this, you can estimate the average 24-month rate of this CD for 3 scenarios (funds rate at 5%, 5.25% and 5.50%):

fed funds rate   APY first   APY last   Average APY
in 6 months      6 months    18 months  over 24 months
5.00%            6.00%       5.00%      5.25%
5.25%            6.00%       5.25%      5.44%
5.50%            6.00%       5.50%      5.63%

I assume the CD rate only changes once at the end of the first 6 months. Also, I assume that the funds rate is used as the APY and not the APR. Nevertheless, this provides an estimation for the overall return. Even a 5.25% APY 2-year CD is a decent deal compared to other 2-year CDs currently available.