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Banking 101: Annuity vs CD - How Do They Compare?Adjustable Rate CDs
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POSTED BY Ken Tumin
If you want the high rate of a long term CD but are worried about rising interest rates, adustable rate CDs may be a good alternative. USAA Bank has adjustable rate CDs (ARC) with interest rates about 0.25% under the fixed rate CDs. With these CDs you have the option to request a one-time adjustment to the new rate up to 2% higher.
USAA ARC CD is similar to CapitalOne's No Regrets CD. At this time, CapitalOne's 5 year No Regrets CD has a much lower interest rate of 4.03% APY. USAA's equivalent is 4.74% APY. Another advantage of USAA is that the minimum is only $1K vs. CapitalOne's minimum of $5K.
What I don't like about CapitalOne's No Regrets CDs is that you don't know how well these CDs will compare with the fixed rate CDs. Rates may go up, but the rates on the No Regrets CDs may rise less. Currently, CapitalOne's 5 year fixed rate CD is 4.50%, almost half a percent higher than the corresponding No Regrets CD. On the other hand, USAA's adjustable rate CDs are pegged to be 0.25% under the standard rates.
Finally, would a saver be better off with a standard CD or an adjustable one? Also, there's the option to break a standard CD when there is a large increase in interest rates. It would cost you a penalty, but it may cost you less than a couple of years of lower interest. Then there's the option to stick with shorteer term CDs or savings accounts. When longterm CD rates finally rise, you can then lock in the higher rates. Trying to maximize deposit rates for money that's not needed for several years is not easy especially when interest rates are expected to rise. A CD caculator tool that can compare these different options would be useful. I haven't seen any online tool like this.
Refer to my previous post for more info on USAA Bank.
USAA ARC CD is similar to CapitalOne's No Regrets CD. At this time, CapitalOne's 5 year No Regrets CD has a much lower interest rate of 4.03% APY. USAA's equivalent is 4.74% APY. Another advantage of USAA is that the minimum is only $1K vs. CapitalOne's minimum of $5K.
What I don't like about CapitalOne's No Regrets CDs is that you don't know how well these CDs will compare with the fixed rate CDs. Rates may go up, but the rates on the No Regrets CDs may rise less. Currently, CapitalOne's 5 year fixed rate CD is 4.50%, almost half a percent higher than the corresponding No Regrets CD. On the other hand, USAA's adjustable rate CDs are pegged to be 0.25% under the standard rates.
Finally, would a saver be better off with a standard CD or an adjustable one? Also, there's the option to break a standard CD when there is a large increase in interest rates. It would cost you a penalty, but it may cost you less than a couple of years of lower interest. Then there's the option to stick with shorteer term CDs or savings accounts. When longterm CD rates finally rise, you can then lock in the higher rates. Trying to maximize deposit rates for money that's not needed for several years is not easy especially when interest rates are expected to rise. A CD caculator tool that can compare these different options would be useful. I haven't seen any online tool like this.
Refer to my previous post for more info on USAA Bank.
