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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Deposit Account Strategies in a Rising Interest Rate Environment

If you have CDs maturing, you may be wondering what to do with that money. If those maturing CDs are at big banks, you probably won’t want to let those CDs automatically renew. I had a 4-year CD at Bank of America that just recently matured. It had a 3.00% APY. After maturity, it was automatically renewed into a new 4-year CD with a 0.20% rate. The longer term CD rates weren’t much better. Needless to say, I closed the CD during the grace period and transferred the money to one of my internet savings accounts.

This Bank of America CD was just a small CD that gave me the necessary combined balance with a checking account to qualify for a free safe deposit box and no checking account monthly fees. This would not be free with current BofA options, but I was grandfathered in many years ago. I found a better safe deposit box option at a local community bank. Since BofA’s CD rates were so low, I decided to close the CD, the checking account and the safe deposit box.

If a CD has a rate that’s lower than top internet savings account rates, it’s an easy decision for me. I’m not going to choose that CD. I’ll move that money to an internet savings account, and then I’ll take my time to decide. If you don’t like internet banks, you may have a harder decision since brick-and-mortar banks and credit unions often don’t offer savings account rates comparable to internet rates.

Barbell CD Ladder

If you’re like me, your savings account balances are probably growing as CDs mature. I have not given up on long-term CDs, but I’ve been trending more toward a "barbell CD ladder" strategy for the fixed-income, deposit account, portion of my portfolio. DA member Shorebreak described this strategy earlier this month in the comments. In this approach about half of the deposit accounts are in long-term CDs and the other half are in online savings accounts and reward checking accounts. Short-term CDs are typically used instead of liquid accounts in a barbell CD ladder, but since short-term CD rates are so low, I think internet savings accounts and/or reward checking accounts make more sense.

If interest rates stay low or fall, a regular CD ladder with long-term CDs maturing in regular intervals will do better than a barbell CD ladder.

If interest rates rise over the next few years, the barbell CD ladder becomes more appealing. The problem is that no one knows how interest rates will change in the future. The faster interest rates rise, the more appealing savings accounts become.

Table of Hypothetical Future Savings Account Rates

If you’re trying to decide between keeping some money in a savings account and putting that money into a long-term CD, the following table might come in handy. It assumes that rates will rise over the next five years. Five different possibilities are provided with different rate hikes.

All start with a 1% savings account for the next year. There’s no guarantee that a 1% savings account rate will be available over the next year, but based on the last year, I think it’s a safe assumption.

After the first year, all the scenarios assume you’ll be able to get higher rates in your savings account. In the left-most column, the rates rise the least. It assumes that the best savings accounts will pay around 2.00% five years from now. In the right-most column, the rates rise the most. It assumes that the best savings accounts will pay around 6% five years from now.

Based on these assumed rate increases, average rates are calculated for the five years. No compounding is considered. You can use these average rates to compare with today’s 5-year CD rates. If the future follows case #2, the average rate over the 5 years will be 2.00%. That’s about the same as today’s best 5-year CD yield of 2.05%.

My main concern with having too much in savings accounts is that it will be hard to know when it’s time to start moving into CDs. As rates start rising, there will always be the question about how much higher they will rise. You may never want to lock into a long-term CD. As we’ve seen in the last five years, that can be costly.

If you want to keep things simple with your deposit account portion of your portfolio, it’s hard to argue against a regular CD ladder. With a regular CD ladder, you don’t have to guess about when rates will rise or how high rates will get.

Possible Scenarios for Future Savings Account Rates

Year Case #1 Case #2 Case #3 Case #4 Case #5
Yearly Rate Increase 0.25% 0.50% 0.75% 1.00% 1.25%
year 1 1.00% 1.00% 1.00% 1.00% 1.00%
year 2 1.25% 1.50% 1.75% 2.00% 2.25%
year 3 1.50% 2.00% 2.50% 3.00% 3.50%
year 4 1.75% 2.50% 3.25% 4.00% 4.75%
year 5 2.00% 3.00% 4.00% 5.00% 6.00%
Avg Rate 1.50% 2.00% 2.50% 3.00% 3.50%

To find the highest rates on liquid accounts, please refer to our rate tables for savings accounts, money market accounts and reward checking accounts.

Related Pages: savings account, CD rates

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  |     |   Comment #1
I like the regular CD ladder. You can have your CD's mature every year, every 6 months or every 3 months or whatever you want. I keep all of the emergency money, savings etc in several reward checking accounts. I see no reason to keep money in a 1% savings account when you could be earning 3 or 4%. If you can earn more in a CD then get it. Takes a while to make up for the 2 to 3% you are loosing while it is sitting earning around 1%. 
  |     |   Comment #2
rosie43:  And where can anyone get "3 or 4%" on any CD with today's rates?
  |     |   Comment #3
She was talking about putting it in RC instead of a 1% regular saving acct
  |     |   Comment #4
Interest rates are not rising......nor will they ever rise again.
  |     |   Comment #5
I think one would have to have the patience of a Saint to fool with those R&C accounts no matter what they paid.  I have too much other stuff to juggle without fooling with that.  I'll take my pitiful 2% CD and be happy to have it knowing it will stay put for several years.  In my younger days, I might have done the R&C thing but not anymore. I also don't think I will see 6% CDS again in my lifetime.  3% if we are lucky but not 6%.
  |     |   Comment #6
The reward checking accounts pay 3-4%. I would rather have several reward checking accounts than have money in a savings account. 
  |     |   Comment #7
What if you are talking about a couple million? RCA's are not an option 
  |     |   Comment #8
"My main concern with having too much in savings accounts is that it will be hard to know when it’s time to start moving into CDs. As rates start rising, there will always be the question about how much higher they will rise. You may never want to lock into a long-term CD. As we’ve seen in the last five years, that can be costly."

Ken's observation is right on the mark. There will always be those out there that will be afraid to "pull the trigger".  Even if, a big if, 5-year CDs go to 3 percent then there will be those that are going to stay in low yielding savings accounts waiting for a 4 percent yield on 5-year CDs, and so-on and so-on. That's what is great about laddering. You won't get stuck with all your funds in a savings account.
  |     |   Comment #9
Isn't anyone satisified with the 3.2% 10 yr CD on Vanguard?

  |     |   Comment #10
If you are young it's easy to go for long term CDs. If you are past 65 or even 70 then one is not quite as sure about the future. It becomes a more difficult situation. You might just need the funds for medical expenses or other unforeseen situations. That's why I think bernanke and the fed and our congress are doing th elderly part of the population a great disservice knowing that the people they are hurting with their policies are more vulnerable than the rest of the younger population . If I were 30 or 40 there is time to recover if the markets head south. Not so if you are a senior. You don't have the luxury of time to wait for a recovery . To bernanke I say shame on you! With that in mind those of us seniors need to manage as best we can.
  |     |   Comment #11
#10  It's my understanding that not many posters would support the "Savers Petition" last year.  I did?  Too bad not many others did.  Maybe someone would start a new one?
  |     |   Comment #13
#11 - Maybe _you_ can start another one? Before you do though, I suggest you consult Paoli...she can give you the skinny on the trials and tribulations of promoting a Savers Petition. It can get pretty ugly even though well intended. Good luck..
  |     |   Comment #12
#10  You have it exactly right.  I think we have a good ratio of seniors on here and for many even a 10 year CD can be risky.  That is why I refuse to go out further than 5 years even with low rates.

#11  If you were one of the supporters of the Savers Petition last year, I truly thank you but not many were.  More seemed to enjoy mocking it and the fact that we even tried to have one.  With the condition our country and economy is in now unfortunately, I don't think it would have a chance at being taken seriously by Washington.  They have gotten us in a position where interest rates going up could really cause tremendous problems for our country now.  We have too much debt we owe interest on.  I think it is more important for caring citizens to rally up and insist the jokers we have running our country stop driving us into more and more debt and call a halt to the wasteful spending!  No one seems to be stearing the ship and we are now in really deep water.  No one wants to take control of the problems we have and we face. 

This week I intend on sending another barage of letters to Washington to let them know we are tired of paying them for basically NOT running our country.  To me, this is more important than a Savers Petition which now has no chance of being taken seriously.  I do urge others to write to their reps and let them know we want our country's problems to be resolved by BOTH parties!  They both are to blame for the terrible financial shape our country is in.  Deposits Online is about how we can become more financially secure.  WASHINGTON needs to learn a lesson from DA and run our country like we try to run our financial lives!   Most people who post here, like myself, actually seem to WORK daily at it!
  |     |   Comment #15
#12 and #14  I agree with both of you.  I did support the petition and I am fully aware of the headaches paoli2 went through. 

The seniors are being ignored since they are perceived as having a lot of savings to draw from as needed.  Therefore, it is believed they don't need any more money (ie: Interest). 

Just look at the petition the for student loans last year.  I believe there was close to a 1 million supporters.  There were positive results.  Lower interest rates for them.  Their Petition was a success.

We (seniors) need something to get higher rates just to live on.  As you stated, we don't know when unexpected medical expenses will occur.  We are being discriminated against.  I believe it takes 100,000 signatures on a petition to get a formal reply.  It was pathetic that we only had a few hundred.

I will not start a "savers petion" but I will sign it.

  |     |   Comment #14
paoli2 - Good luck with your letters to the powers that be. I realize that you have posted several times in the past about the various letters that you have sent, but, out of curiosity, do you actually receive many/any serious replies? I have also written a couple of times or so but have yet to receive a response other than a 'form' type letter. How do we throw the rascals out? lol
  |     |   Comment #18
#14  Yes I do get responses to my letters but they always blame the other party for why they can't get things done.  Now both parties blame Obama.  They just all do anything to keep us distracted from paying attention to the fact that they are allowing our country to go down the tubes and have only one concern, to get reelected.  Obama is on his last leg but that doesn't mean even he cares about what legacy he leaves behind him.  Sorry for being so bitter but I am tired of them all getting our tax dollars to do basically nothing while we have to scratch by on 1% (maybe 2%) savers interest. 

What we don't need is another Savers Petition.  We need millions of voters to flood Washington with letters or a Petition telling them we want our country run by competant people or we are changing troops as soon as we can!  Getting our country run by people who care about it should be our first priority.
  |     |   Comment #16
I certainly agree that rewards checking accounts -- which still can be found in the 2-3% APR range and a few even at 4% -- are not the solution for "millions" of dollars in a person's savings.

However, it's not difficult or unreasonable for a single person to keep between $50 and $75,000 in 3 or so different RCA accounts and earn those pretty good interest rates, on funds that are entirely FDIC insured and 100% liquid.

If you're keeping that kind of money in easily accessible account, it makes it easier to lock up other funds in longer running CDs, without having to worry about needing to break them prematurely.

  |     |   Comment #17
I have one RCA now, only pays 1.25% but worth it since has $100k max. Also this is my primary checking account so nice having the float when I make large payments by checks. To have 3 RCA you will need to make 30 purchases, I do most of my debt requiremens for this account by getting $5 of gas at a time and a couple small purchases at grocery stores. But to do 30 would be very time consuming plus like any good saver I have a credit cards that pays 5% at pump and 3% at grocery stores so need to factor in what I lose by using debt card of those credit cards

  |     |   Comment #19
To #7. I have a lot of money in CD's. They are laddered. Only a small portion of them mature each year. I have some now going out 10 years. I am way past 65.  In the 80's I had one CD going out for 15 years. To #10 I am older than 65 and still go out 10 years if the rate is higher. have one now at I Go Banking. It is only for 3.44% and won't mature until 2021 but if I had it sitting in a savings account earning less for the last 2 years earning 1% I would have lost 2.44% interest for each of the last 2 years. Doesn't matter how long I go out because I ladder my CD's and some that come due every few months. If I die the children inherit them. So why does it matter how far you go out?  I have the reward checking accounts to fall back on if needed and a CD maturing every few months. Have laddered CD's since the 70's and have never had to break a CD for any emergency so far. Have always had interest compounded. The only time I did not reinvest was when we were building this home and put the CD's in savings to pay for it and also used a 5% cash back card from AARP for appliances, kitchen cupboards, hardwood floors, carpeting, electrical fixtures, toilets, and all the new furniture. (ours was all 40 years old and most we gave away or burned). Then when we listed our home in Nov of 2010 and sold it in 14 days I used this to gift to the children that Dec and Jan and the following year and then put the rest in a savings account that belonged to my sick husband with the children as beneficiaries and when he passed 2 years later the children inherited it. If I died first he would have his SS and our IRA's and this savings account and the CD's to help care for his nursing home care.  To #17 All the stores that I shop at are within a 1 mile strip. I can use 4 debits cards for $1 at the gas station and put the rest on my 5% cash back credit card. I can use 4 cards  for 1 item each going through the express lane at the grocery store and put the rest on my cash back credit card. I can go to the take out and get my 50¢ ice cream cone, I go to the $1 store to get some holiday cards, or a birthday card, or halloween, valentine, Easter, or back to school cards for the grandkids etc. They are only 50¢ each. Target has $1 section and I just picked up another 15 expandible poly files that have 5 sections each and use one for my income tax information for the current year. I also use one for each year of past years records and put a blank address label on the front of it writing what year it is for. I have in the past bought blue and pink ones and gave them to the "seniors" when we visited shut ins with home made soup telling them that the pink ones are for the girls and blue for the guys and that they could put their Medicare summary in one section, their supplement explanation in another section, their doc bills in another and when they were paid  to staple them together with the receipt or credit card number and put them in the last section to keep track of their Medical bills. There are labels inside for each section.  Several had cancer and the paper work can be overwhelming. The $1 store also has phone book size calenders this time of year and when you open them up each month is on each side of the page facing you. They have  big boxes for each day and lines in each box to write on. I bring these to the senior with a set of colored  pens you can get at the $1 store or any store now with the school sales and write in the front of the calender a color for each person or appointment. Like Blue for doctor, green for hair appointment, red for dentist etc. It helps the "seniors". I go to Aldi's and get my bananas and or some fresh fruit. Even the farmers market uses debit cards now.  I have not done this but have heard that you can also use your debit card on line in small amounts several times a month to pay a credit card bill, electric bill, phone bill, heat bill etc.  I have no problem using the debit cards 10 times or so in one trip. I usually go once a week and that takes care of my debits. It takes about 70 minutes if I don't run into a friend at one of the stores but 20 minutes is used getting there and back. 
  |     |   Comment #21
#19 Rosie43: WOW!!!!
  |     |   Comment #22
#19 ROSIE  OMG you go !!!!!!!! I Think That Is Fantastic.....
  |     |   Comment #20
rosie43:  That's a lot of work you do for the reward cards.  I really commend you.  I wish I had the same drive you do.  Keep up the good work!
  |     |   Comment #23
Rosie, I bet every store you visit, they curse you when you leave, you cost them arm and leg charging 50Cents for items one at a time, while they pay 45cents processing fee for each purchase.
  |     |   Comment #24
#23 you're just jealous - rosie rules!

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