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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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When Do CD Rates No Longer Matter?

CD ladders can be a good way to invest in CDs. In a typical CD ladder, when a CD matures, you roll that into a long-term CD with the best rate you can find. I reviewed this strategy in this post. Many savers stick with 5-year CDs. In today's environment, some have increased the terms of the CDs in their ladders to 7 and 10 years to maximize their interest.

Poll Question

If CD rates keep falling, is there a point in which CD ladders no longer make sense? That leads me to today's poll question. When one of your CDs matures, how low of a CD rate would it take for you to keep that money in a liquid account instead of rolling it into a new CD? For example, if the best long-term CD rate you can find is only 1.00%, would that be so low that you would just move the money into a savings or checking account?

CDs vs. Savings Accounts

I hope we don't face this situation, but with the Fed's late-2014 pledge, it's possible that CD rates will continue to fall. A few internet banks already have unbelievably low 5-year CD rates. For example, the 5-year CD APY at is only 1.10%. ING Direct's 5-year CD rate is even lower with a 1.00% APY (as of 1/31/2012).

The two reasons to purchase a CD rather than putting that money into a liquid account is a higher interest rate and a rate that's guaranteed not to fall until maturity. As CD rates fall, those two advantages become less important.

I reviewed a similar issue with savings accounts last year. In my last year poll, I asked when do savings account rates no longer matter. In the poll, 60% of the readers who responded said rates of 1.00% (or higher) were too low. As I described in that post, when rates are so low, the extra amount that you could earn by moving your money to another savings account may be too small to make the effort worthwhile.

The main issue with CDs isn't the effort to open a new account. It's locking your money into a low rate for a long period of time. A mild early withdrawal penalty can reduce this problem, but there are still potential risks. I have more details in my post, What to Do with Maturing CDs? Choosing the Best New Long-Term CD.

For those who want to keep the money 100% safe with no risk of principal loss, the main alternative to CDs is a liquid account like a savings or checking account. If you had a 5-year ING Direct CD maturing today and you wanted to keep your money with ING Direct, I think most savers would choose ING Direct's savings or checking account instead of a new 5-year CD with a 1.00% APY. Currently, ING Direct's savings account pays 0.80%. That CD rate isn't high enough to make up for the loss of liquidity in my opinion. However, it should be noted that the savings account rate may be much lower next year. That doesn't help make the CD much more attractive. Even if the savings account rate falls to 0.40%, that 1.00% CD doesn't look much better. In short, I think there's a CD rate so low that most everyone will choose the liquid account over the CD.

I'm Not Giving Up on CDs Yet

In my opinion, we have not reached the point where CD rates don't matter. Certain long-term CDs can still make more sense for safe money than keeping that money in liquid accounts. I reviewed using CD ladders with the highest CD rates in this post, and I reviewed choosing long-term CD rates with mild early withdrawal penalties in this post.

For savers with CDs maturing over the next year, CIT Bank's 2-year Achiever CD can be useful. If CD rates continue to fall, you can always fall back on this CIT Bank 2-year CD which allows for a one-time add-on deposit. I have more details in my CIT Bank CD review.

Searching for the Best CD Rates

To search for the best nationwide CD rates and the best CD rates in your state, please refer to the CD rates section of

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Shorebreak   |     |   Comment #1
Good question Ken. During the coming two, maybe three year period we may see long-term CD and share certificate rates drop to where it's an almost flat yield curve out through the seven year maturity period. At present, I've gone from a five year ladder out to seven years. If PenFed drops their 7-year yield below 2.75%, which is expected in February, it will be time to re-think my laddering strategy.  Bernanke sure has placed many of us between the proverbial "rock and a hard place", hasn't he?
Anonymous   |     |   Comment #2
Anything below 2.5 or 3% is a conscious decision to lock your "100% safe" money into losing spending power each year. An ibond or TIPS might be safer. No gain these days, but no loss either (except for those who don't believe the gov't CPI estimates).
Alicia   |     |   Comment #3
How about those State of Israel bonds for 10 years which pay over 3.50% (rate) and pay interest in checks to the bondholders?  My aunt has these and loves them.  Reportedly, they are very safe and have never been defaulted on.  Does anyone have an opinion on these /&or experience with them???  They really seem like a viable alternative to sub-2.5% CD's.
Anonymous   |     |   Comment #4
I'm someone who has worked very hard to have a decent savings amount, and am an avid saver. I didn't inherit money, I've had to do plenty of low-pay, far-away jobs over the years. Because of that I've always been risk-averse. I don't invest at ALL in the stock market, mutual funds, 401ks, bonds, futures, or anything like that. My savings to date has always been 100% CDs. The rewards have been smaller, but at least it's been 100% guaranteed. I watched as friends and colleagues invested and were rewarded big in stocks over the years -- have lost big as well. Right now I'm lucky enough to have put my funds in a CD that's paying about 3% and that I can add to, but it will run out in 2015. That may be good news for me (as long as the bank remains in business, though its health seems to be OK) as hopefully (??) rates might go up after 2014. But with the housing mess, and no one wanting to raise rates (and thus put millions more out on the streets with ARMs that wouldn't be able to afford an increase) I'm thinking it might even be longer before rates go up. And not to mention, anything else I try to get (for instance, for my IRA, which must be separate than the normal CD) or any other savings instrument, the rates are terrible now.

So yes, CDs matter to me. I know people talk about diversifying one's portfolio, but pretty much just about everything else has risk, and even things that were virtually guaranteed to be "safe bets" or "safe bets over the long haul" have shown recently that it's not always the case. Even houses and property. If one lives to be 200 perhaps. And truth be told, if I had the inclination to take risks, investing in fine instruments (such as violins) and artwork has gone up more and stayed more steady over the years than stocks, but I still won't do it (especially as they require a lot more investment -- often as much as a house).

So CDs are still very relavant to me, and I have a feeling there are a lot of others out there like me as well. I don't begrude people for investing. Those that take risks often do (and should) get higher rewards. But that's not who I am, and up to now I've been lucky to get at least a somewhat decent CD rate. The real shock to me will come in 2015 when my current add-on 3% CD expires, if rates remain where they are.

Just a short PS: for those who are like myself, there ARE a few tidbits popping up here and there, but they're rare (and KUDOS to Ken and his page for making them easier to find). For instance, Navy Federal Credit Union had a 3% IRA recently (might still have) -- but of course it has restricted membership, and had an $18,000 max. But for those that could use it, it's pretty darn good for 2012. I've seen things like that pop up here and there. Try to get them if you can, folks.
Anonymous   |     |   Comment #5
I like to say how well a good job Ken has done for us C-D and IRA searchers I found Pen-Fed by him         Thanks Again The Gutterguy
John   |     |   Comment #6
We are so luck to have Ken!

He is trying to do the impossible - help us with a fading interest rate economy!

My hat goes off to him!
Steve   |     |   Comment #7
RE: Anonymous #4:  I have also worked very hard for my savings and am ultra-conservative.  I have 85% of my savings in CD's.  Over the last 7 years, I have invested in very high quality rare u.s. coins.  Pretty easy to get educated about this and insure that one is paying the correct present value for these investments.  I have averaged 7%-12% annual return on rare coins over this period.  My research has shown that high quality rare (u.s.) coins (not tied to gold or silver) do not depreciate over time, they don't typically "go down" in value.  At worst, there may be a 6 month-12 month period in which the value of a given item is stagnant, but the direction is almost always "up," in fact, 100% so over the last 20 years or more.  You may want to look into this for at least part of your nest egg. As I said, not hard to develop the knowledge to do this as a casual investor (unlike, let's say, investing in paintings or antiques).
Anonymous   |     |   Comment #8
As these rates continue to decline, it puts some retirees in a position of having less reportable income which probably throws them in a lower tax bracket.  Instead of reinvesting the interest back in the lowest rate paying IRA CD's, it may be advantageous, and needed, to take the interest from these lower rate CD's as a distribution up to a point that the amount of distribution does not put the level of income into  a higher tax bracket.  To avoid a penalty, one would probably not want to do this until age 59-1/2.  This distribution possibly will supplement the lower income that one receives with the lower rate C.D.'s.  and the other benefit is that you are gradually taking out the distribution at lower tax rates instead of getting whacked on a larger distribution requirement at age 70-1/2 which most likely throw you in a much higher tax bracket. 
Angry CDer
Angry CDer   |     |   Comment #9
CDs are important to me as well. But now with all this discussion of a certain presidential candidate's tax rate, what I don't understand is this:

Why is it that someone like Romney (though certainly not just him, just using him as the latest example) only has to pay a 13.9% tax rate on income that comes from investments, while the rest of us who work not only have to pay a far higher rate -- but interest from MY investment (in my case, CDs) is taxed at the full rate?

If someone gets $10,000 a year interest from their investment in CDs, how is that different from someone who gets $10,000 a year from their other investments?
Anonymous   |     |   Comment #10
#9  Your investments need to be in Capital assets and that covers a lot of things but I have never seen CDs included.  I agree with you that CDs are our choice of investments and it doesn't seem right that we don't get a break on taxes for having them.  One of the Republican candidates had said he wanted to make all savings taxfree but unfortunately I don't think it was Romney who is probably going to be the candidate from the looks of things now.  We are being discriminated against because of our choice of savings!  Maybe we should include that in our Petition.
Kaight   |     |   Comment #12
#10 I think the difference between our CDs and other folks' capital investments is that for us there is no risk of loss.  Supposedly the favorable tax rate is to compensate risk-takers.  Of course, when the government wrongly and improperly bails out failed enterprises with our money that sort of turns everything on its head!!

I was fortunate yesterday to be able locally to open a 5 year CD at just over 2.5%.  I don't see how this can continue much longer.  More important than the rate, the CU rep told me she had never had any member cash in a CD early.  That's the kind of situation where I want my five year money.  With the 180 day penalty, I am looking at the CD as a "one year minimum" situation.  After that, who knows what will happen.  If BHO is re-elected I most likely will be pleased to keep the CD intact for the next five years, because under his "leadership" the economy will go nowhere.
Anonymous   |     |   Comment #11


Thanks for all you do.  When rates get this low, I feel we need take SOME risk to get us through this almost no interest periods.  So what does that mean.  For me, it's short term (4-7 year) tax free bonds, some MF bond funds, some REITS, and divident payers from the energy or utility sectors.  All of that somewhat short term, so that when rates change, those dollars can come back and go back into ultra safe CDs and the like.
rosie43   |     |   Comment #13
Need to thank Ken for all the work and for all the help he has given us through out the years.

I think CD's are relavent and will continue to use them. Yesterday a spokesman for the  CBO was on C-Span and stated their outlook and suggested the economy will pick up but not by much for the rest of the decade.
ChrisCD   |     |   Comment #15
Even though the rates are low, if the yield curve continues to give some premium over the short-term rates, I will take the long-term CDs.  For instance, if 1-year rates move down to 0.25% to 0.50% and the 5-year around 1.25%, there is still a decent premium there.  So I would judge it more on the spread then the actual rates.  Especially if I already have a good ladder.
Rosedala   |     |   Comment #17
Alicia, here’s something about Israel Bonds, but you’ll have to ask your questions of the company itself and other sites before you buy.  I most probably would look into them if I didn’t need the money to be liquid at this time: .   However, unfortunately, as it happened to many others, this October and October 2014 will mature my wonderful Penfed CDs at 6% and I know I won't know at those times what to do... :(  But, as they say, it's only money, so:  :-)  
Alicia   |     |   Comment #18
Thank you, Rosedala #17.  I will look into the Isaraeli Bonds.  Their 3.5% plus rate looks very attractive. I can't find such a rate elsewhere right now.  I am helping my father-in-law invest now and he is in dire straits due to 5% CD's that are rolling over into 2%.  Peace to you.
Bozo   |     |   Comment #19
Ahem, getting back to Ken's question, at what point do long-term CDs become uncompetitive? For folks with a time horizon of five years or more (i.e., most folks who hold CD ladders of 5-year CDs and try to fill and roll at maturity), the answer is: they probably already are, at least at any rate below the SEC rate on your garden-variety intermediate-term bond fund with a corresponding duration (of around 5 years).

For those with maturing 5-year CDs, I would strongly suggest you explore low-cost Vanguard intermediate-term bond funds, available both in taxable (which are ideal for tax-deferred IRA accounts) and tax-exempt (for after-tax funds).

These types of bond funds generally present a "point of indifference" at a period of time equal to the duration when compared to the inception SEC yield. In plain English, a bond fund with a duration of 5.0 and an SEC yield of 2.0 (with dividends re-invested) should be worth just about the same as a 5-year CD with an interest rate of 2%, compounded. When a 5-year CD falls below the SEC yield on such a bond fund, it has become uncompetitive.
Anonymous   |     |   Comment #20
If the CD rates aare < 3% = No go for me. I stay in cash only accounts.
Anonymous   |     |   Comment #21
Ken, Here is a bank you should add to your database from TampaBay.  USAeriBank, with locations in Pinellas and Hillsborough Counties, FL.  They offer a 5yr CD with a 2.05%APY.
Bozo   |     |   Comment #22
Further to my post above, here's a concrete example. VBTSX (a Vanguard intermediate-term bond fund) has an SEC yield (per Morningstar) of just about 2.2% with a duration of a tad over 5 years. USAA's 5-year jumbo CD ($175K ) is yielding 1.91% APY. Credit risk is a negative with the bond fund, but enough to justify the nearly 30 point spread?
emory   |     |   Comment #23
Members are reporting the Israel Jubilee product (@ 3.55% 10YR).  Please understand that the Israel product is A BOND, not a CD.
The Israel Bond has a 10 year 3.55% term (matures in 2022).  It is not comparable (risk-wise) to a 10 year CD (currently a CD is reporting a 2.75/2.80% for a 7 year CU; or 2.70% at a local 10 year Bank).

Please be informed.
Terrence Wilkens
Terrence Wilkens   |     |   Comment #24
RE: Emory #23:

I think the posters are well aware that the Israeli Bond is a bond not a CD.  They seem to have made that clear.  But for a long-term fixed rate investment, it may be worth the minimal risk to get 3.55% vs. 2.7%.  Over the course of 10 years, that's over $8,000 on a $100,000 CD.  Reportedly, there's never been a default and the bond ratings are very high.  By the way, that 2.7% which you quote may become very rare soon.
Anonymous   |     |   Comment #25
what will happen if we take are money out of cds and savings an put cash in a saftey deposit box.(to uncle sam)

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