Notes on Personal CD Investing: Rate-Chasing 101
The following is a guest post contributed by Charles Rechlin, a long-time reader and friend of the site. His last guest post covered Payable-On-Death Accounts. I would like to thank Charles for sharing more of his valuable experience on personal CD investing.
Notes on Personal CD Investing: Rate-Chasing 101
by Charles Rechlin
Sometimes, it seems as if I’ve been chasing CD rates my entire life, I’ve become so weary of doing it.
In truth, however, I’ve only been at it since 2008 when, thanks to Ben Bernanke, and in order to maintain a yield sufficient to pay my bills on time, I had to abandon a portfolio of US Treasury securities and replace it with a disparate collection of Federally-insured bank and credit union CDs.
Over time, I’ve developed some procedures designed to improve my chances of success. My latest foray into chasing rates is illustrative of my less-than-perfect system.
I Become a “Student” Again and Join a Credit Union
In early July, Ken published a Blog posting about a “Celebration Certificate Special” offered, for a limited time, by CFCU Community Credit Union, headquartered in Ithaca, NY. The promotion was for a 33-month CD which carried a rate, on balances of $100,000 or more, of 2.10% APY.
This piqued my interest, not only because I’d attended college and law school at Cornell University’s Ithaca campus many years ago, but also because I’d signed up to attend a 5-day, non-credit seminar on major 20th Century American trials (from Sacco and Vanzetti to OJ Simpson) during the last week of July as part of Cornell’s “Adult University” program. (This program is far from academically rigorous, and basically offers nostalgic oldsters like me an excuse for taking a vacation in the Finger Lakes region of New York State during the summer.)
I noted that CFCU’s field of membership includes anyone who “attends school in” Tompkins County, NY (home to Cornell).
I commented on the Blog posting that it looked like I qualified for membership, although I hadn’t lived in Ithaca, or been enrolled in a Cornell degree program, since 1971. Other readers offered helpful comments.
With that, I was off and running, chasing yet another CD rate.
I emailed CFCU to determine my eligibility for membership. An Ithaca branch rep confirmed in reply that I’d qualify to join based on my five-day stint at the Adult University. At my request, she emailed me the Truth in Savings Act disclosures for the CD, and she suggested I drop by in person when I was in Ithaca to apply for membership and open a CD.
Funding was something of an issue. I didn’t have handy the $100,000 I needed for a 2.10% APY CD, so I ended up closing two Ally Bank CDs maturing next year to get the requisite cash, paying a “grandfathered” 60-days’ interest early withdrawal penalty.
Having completed my sojourn at Cornell, I’m now a proud member (for life, no less) of CFCU, and the owner of a 33-month CD with, by my calculation, a 1.98% APY, after giving effect to the modest Ally EWP.
Some of My Procedures for Chasing CD Rates
My CFCU adventure demonstrates some of the techniques I employ for seeking out and getting favorable CD rates. Sometimes they work, sometimes they don’t. They’re almost never easy.
1. I Regularly Check the Best Available CD Rates on the Internet.
Knowledge is power, so I review CD rates and deals nationally and locally available on a daily basis.
There’s no question that the best place to find competitive CD rates and deals is DepositAccounts.com.
I review the rate tables on this site at least once a day, focusing on maturities that are currently of interest to me (for quite some time now, three to five years). I also read the Blog and Forum postings published throughout the course of the day.
I also visit Bankaholic.com, a website owned by Bankrate, Inc. where I posted as a freelancer for five years. Bankaholic’s blog postings are good sources for current CD deals, both nationally and locally, although the site lacks the active (and vocal) community of readers found at this site.
I further check, at least once a week, the websites of banks and credit unions where I’ve found good CD deals in the past, such as Alliant CU, Elements Financial, Synchrony, Barclays and Nationwide Bank.
I perform these daily and weekly reviews even during periods when I have no upcoming CD maturities. If a CD deal is good enough, it may warrant payment of an EWP to close another CD to provide funding. This is pretty rare, but sometimes it happens, as was the case with CFCU, whose “Celebration Certificate” I found in the course of my daily review of this site.
2. I keep close track of CD maturities at least 30 days out so I’m prepared to move money from one institution to another as rapidly as possible if a good CD deal materializes.
Believe it or not, I actually try to plan how I can move money out of a maturing CD most efficiently—i.e., in the shortest time and at the lowest cost--if the need arises to redeploy it. This often involves advance legwork, by email and phone.
For example, I’m currently staring at major CD maturities at XCEL FCU between August 19 and August 21. I’ve contacted both CFCU and XCEL about the arrangements I need to make to move all or part of the maturing XCEL balances into a 33-month Celebration CD, on the assumption that the CFCU promotion, which still remains open, continues throughout August and a better deal doesn’t show up elsewhere.
Right now, it looks like I’ll have to wire transfer the funds from my XCEL savings account into my CFCU savings account, and open the CD or CDs by phone, incurring $25 outgoing and $15 incoming wire fees. I suppose there are worse things.
3. I keep small savings or checking accounts at banks and credit unions at which I’ve previously maintained promotional CDs that are now closed.
Although this clutters up my balance sheet, I find it potentially useful to keep these accounts (which I think of as “orphan” or “anchor” accounts) open after I’ve closed out all my CDs at an institution. Examples would include a $5 savings account needed for membership at a credit union, or a no minimum balance checking or savings account at an online bank.
This avoids the potential delay involved in reapplying as a new account owner in order to pounce on a good CD deal at the institution—a delay that can result from a Patriot Act review, a hard or soft credit pull, establishing an ACH link, a bureaucratic glitch, or simple institutional inertia.
For example, I’ve had such an account for some time at Velocity Credit Union--a small savings account I keep open to maintain my membership. Velocity regularly offers promotional CDs, but since I closed my last CD there in November 2014, none of Velocity’s promotional deals have caught my fancy. But I remain hopeful that an attractive deal will eventually come along.
Of course, the trick here is to avoid an account that can attract an “inactivity fee.” Also, I have to stay on top of potential changes in minimum balance requirements and account fees. More work.
4. I try to identify outstanding CDs that, based on their rates and early withdrawal restrictions and penalties, may be candidates for early closure to fund an investment in a promotional CD.
Sadly, because of the need to fund my 33-month Celebration CD at CFCU, I’m now without any Ally Bank CD having a 60-days’ interest EWP. Other Ally CDs in my portfolio were previously closed to fund similar rate-chasing adventures.
Sadder still, my next best candidates for early withdrawals are the XCEL FCU CDs that mature this month, which have EWPs of 90 days’ interest. I actually considered closing these early to put more money into CFCU last month, but the numbers didn’t pencil-out.
As far as this source of CD rate-chasing goes, then, the cupboard is pretty much bare, absent some spectacular promotion somewhere that lures me into breaking a CD with a six-months’ interest penalty.
What I Don’t Do to Chase CD Rates
I don’t pile up money in a savings account and wait for a good CD deal to come along.
I’ve tried something like this a couple of times, setting up a savings or money market account with a six- or 12-month rate lock for high balances, and then letting the funds from maturing CDs accumulate in it for a time.
But I really don’t have the patience for this approach. I’m always convinced that the good deal looking me in the face at any moment is the best deal I’m ever going to see. I just can’t convince myself that CD rates are going to return to more favorable levels someday.
In the end, I think that successful CD rate-chasing is much less a matter of skill than of luck. Even with the procedures I try to follow, finding just the right deal at just the right time is usually the product of happenstance—like being in Ithaca, NY—2,500 miles from my home--precisely when the local credit union is conducting a limited-time promotion.
Besides, chasing rates involves more time than most people are able—or willing—to spend. Unlike me, most people have an actual “life” to live every day.
The endless pursuit of CD rate deals always puts me in mind of the 1960s cult novel by Richard Farina: “Been Down So Long It Looks Like Up to Me.” (By the way, the novel is set, in part, in Ithaca.)
At times I get so tired trying to find good CD deals that I seriously consider throwing it all up in favor of some more productive pursuit—like reading a good book, playing with my beagles or just taking a nap.
Editor's Note: DepositAccounts.com's Bank Alerts system can be useful to stay on top of changes at your banks and credit unions. With the Alerts system you can receive notifications whenever a bank or credit union updates their rates, adds a promotion and when we add a new blog post or a user submits a review for them.
Don't know about CFCU, but XCEL offers shared branch services which may be useful to you?
Thanks so much for all the useful hints, suggestions, experiences.
The banks are flooded with money from ECB (their own QEs) and what ECB does is charging money for keeping the money on the bank's books.
To circumvent that, banks and insurers are now considering keeping cash in high security vaults to avoid charges with central banks. Munich Re bank already started yesterday and DB is planning soon to do same thing. While in UK, LLOYDS BANKING GROUP plc last month extended its cost reduction measures by announcing a further 3,000 job cuts and 200 branch closures, citing longer-term lower interest rates.
Commerzbank recently predicted that revenues will drop by €100m a year if interest rates remain low, prompting questions over the need for more radical cost-cutting.
The list is endless, every bank in Europe struggle to survive and is coming this way, therefore, I do not expect rate raise anytime soon here.
The dilemma I'm facing today will not reoccur for some time. I believe the outcome of the election in November will significantly impact rates going forward. I acknowledge others do not share this viewpoint. I'm not trying to convert anyone to my way of thinking. But if I knew today the POTUS election winner, and the makeup of Congresss for the next two years, I would have a much clearer way forward with my CD investing. As it is I'm on hold for a short while, though always with eyes wide open for a scintillating deal.
If some of us know the problem for the low CD rates, why not share it with the others.
The FED used to be independent until the politicians made it political body to serve the party in power.
Talking about the present and future rates of CDs, savings and bonds and bills and treasuries is pointless, unless we talk about of what is causing the low rates and when or if and how can be revived up.
If we the people are excluded from a debate, what is the point to comment, just to praise or denounce the rates, sounds to primitive and basic to me.
Good to see Ken keeping a firm grip on it.
Example: If a politician says, I'm for printing money the dollar will drop as a rock on the exchanges, If a politician says, we will balance the budget and stop the deficits, the dollar will jump at once on the currency markets, and this is only by talking, not acting yet.
China, Japan, Canada, Great Britain and others may dump or start buying the treasuries and that will have a huge ramification to all of us, just if a politician mentions the dollar, the budget or the economy.
Being ignorant is the last thing you want to be in this day and age.
The commenters should not be trying to establish a decorum of their own Rules
.this rate environment has been frustrating , should have been retired years ago ..no interest on your money and health care costs through the roof keeps me working..
Thanks for the article.
When you chase cd rates, do you avoid cd's from credit unions/banks that exist in other states, outside your residency, that have state income taxes for purposes of not having file state income taxes in these states on the interest income from the cd?