Dedicated to Deposits: Deals, Data, and Discussion

Yields on Long Term Treasuries Surge Again - Effect on CDs?

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As reported by this AP article the yield on the 10-year Treasury note reached its highest level in more than 5 years this afternoon. As my previous post on KeyBank indicates, we're starting to see long-term CD yields increase. A reader mentioned that this 10-year CD rate increase was the largest week-to-week rate increase he has seen at KeyBank since he started monitoring KeyBank rates in 2002.

Will this rate increase continue? Should you hold off on long-term CDs? I can't say, but as the reader also mentioned, it does make sense to pay extra attention to the early withdrawal penalties. This is the interest penalty that you pay when you make a withdrawal of principal from a CD before it matures. It can vary from 30 days of interest to 30 months of interest. The smaller the penalty, the less it will cost you to break a CD so you can open a new CD at a higher rate (see my CD tool if you're making this decision now).

Even with the recent long-term rate increases, the long-term CDs are still not paying much better than the shorter term CDs and online savings accounts. So there is still not much advantage with locking into a long term, and now with long-term rates starting to surge, it's even less attractive. But there is the concern of a repeat of 2001 when rates fell like a rock. I'm sure those who locked into a high yield long-term CD in late 2000 were happy about their timing. CDs with add-on features can come in handy for these situations. See my post on Self-Help Credit Union's CDs for an example of this add-on feature.

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Comments
3 comments.
Comment #1 by Mario (anonymous) posted on
Mario
Today's 10 year auction actually had the highest auction yield since Nov 2000! (almost 7 years!)

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Comment #2 by Bozo (anonymous) posted on
Bozo
Banks and credit unions are fundamentally dinosaurs. They take a long, long time to catch up with trends in the market. Given the action in the bond market these last two weeks, I would keep your CDs reasonably short (no more than 6 months). Just my $.02.

Yours,

Bozo

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Comment #3 by Anonymous posted on
Anonymous
I got another 8 months to go on my 6% CD (that I found on this blog, by the way). I would like to think that I'll be content with my 6% even if rates go up - but how high do you really think they could go??

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