Low Rate CDs. WHY?

FAR | Jun 12, 2013 | 113 posts since 2013

Do banks really get customers to bite when they offer absurdly low cd rates? I can’t believe anybody would even be remotely interested in say a five year cd at igobanking for .35%. Hey, if you want to double your pleasure they also have a ten year cd at the same .35%. They do offer 1.75% on a seven year cd but for me to go that long the rate would have to be a lot higher than the Mendoza line.

I had a cd at Igobanking a few years ago with a decent rate and had a good experience dealing with them so not picking on them. I am just curious why even offer these rates if people do not buy. Unless people are buying them, then I would be interested to know WHY. In today’s market, unless it is for a very short term, I can’t see obtaining any cd under 1% when there are money markets/savings accounts that can offer virtually the same rate. I understand the cd would offer a guaranteed rate and many of the money market accounts have a limit on how much you can have to earn their top rate but for my own curiosity can anyone that owns a low rate cd explain their reasoning to me?

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Answers

Shorebreak | Jun 12, 2013 | 4,039 posts since 2010

I have a 5.01% APY CD that matures next week. Most probably the money will be going into a savings account to add to my emergency fund. Eventually, everything will be an "emergency" if this keeps up.

7

paoli2 | Jun 12, 2013 | 2,641 posts since 2011

FAR: What do you consider a really "too low rate"? With me it's less than 2% for 5 years. I will contact and go to any bank in my state within a certain mile radius to get my needed rate. I do hope that when my CDs mature in the future, I won't have to travel too far to find a bank within my acceptable range. Now this doesn't mean it is a rate I want because I would much rather have higher. However 2% is better than the .55% my local bank said their 5 year rate was. Things have really gotten bad with CD rates.

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Wil | Jun 12, 2013 | 242 posts since 2010

I have a CD @ 5.12% maturing on July 9th, and I have absolutely no intention of putting it into another CD! I'll probably put some of it into my flexible premium deferred annuity, currently at 4.0%, and leave the remainder to further build up my emergency fund. I don't even think another I-bond is worth it. Or does anyone out there have any better ideas to share?

After July 9th, I'll have only one CD left, at 5.25%. But that doesn't mature until Dec. 17, 2015. Maybe interest rates on term accounts will be better by then? Hope so, but I won't hold my breath while waiting.

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FAR | Jun 12, 2013 | 113 posts since 2013

2% at 5 years is about my cut off as well. Have even gone 1.5% for thirty months but would not entertain anything less. Anything below 1.5% I rather keep liquid in a money market until a cd special comes along. I too have no problem driving if needed, within reason to obtain a worthy rate.

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Wil | Jun 12, 2013 | 242 posts since 2010

Wil, doesn't the interest rate reset for deferred annuity contracts? You are still receiving 4% for current premium payments? I would have thought the rate would be lower.

Lou: On my contract I am currently getting 4%. I have been notified that it is dropping to 3.8% in October. The contract has a guaranteed minimum of 3%. Too bad I didn't get it about two years earlier, the guaranteed minimum used to be 4%. New contracts for this particular annuity still have a guaranteed minimum of 3%, so far.

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Wil | Jun 12, 2013 | 242 posts since 2010

Lou: Unfortunately, it won't do any good. My contract is with a relatively small fraternal organization based in PA (established in 1900). It has a website, but the website gives few details, and no rate information. Even when I got my contract, I had to call with a number of questions. I also have a life insurance contract with them, and only found out the various options available by having to phone. I wasn't even certain that I qualified for the field of membership, otherwise I would have gotten that annuity sooner than I did (and had gotten a contract with the former 4% guaranteed minimum if I had). I wouldn't have even been aware of its existence had it not been for literature they send to my church every now and then, which were among the flyers and brochures available in the church office.

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lou | Jun 12, 2013 | 1,004 posts since 2010

Wil, doesn't the interest rate reset for deferred annuity contracts? You are still receiving 4% for current premium payments? I would have thought the rate would be lower.

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lou | Jun 12, 2013 | 1,004 posts since 2010

"New contracts for this particular annuity still have a guaranteed minimum of 3%, so far."

Do you have a link where I could see these contracts?

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