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Riding The Yield Curve With Long-Term Cds

Tuesday, August 17, 2010 - 12:57 PM
Dr. Don at Bankrate answers a reader's question about why banks offer long-term CD rates that are higher than shorter-term CDs even after you close the long-term CD early and take the early withdrawal penalty. Dr. Don says this is a form of "riding the yield curve", a term more common for bond investors.

Dr. Don doesn't provide many insights of why banks do this. In my opinion, banks may expect that most people won't close the CD early even if rates do rise. Also, he didn't mention the small print that some banks have in their disclosures that gives the banks the right to refuse an early withdrawal request.
Ken TuminKen Tumin5,473 posts since
Nov 29, 2009
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