This afternoon's quarter point Fed rate increase will impact owners of Bellco's Index Advantage CDs, to include both the short 22 month CDs and the longer 44 month CD product. Rules of these CD accounts specify that on the twenty-sixth day of each month the Federal Funds rate is checked. Any change is then applied to your CD account interest rate on the first day of the next month. In the present case, owners of Bellco Index Advantage certificates will see their interest rate increase by 0.25% on January 1, 2018. This brings the interest rate on the 44 month CD up to 2.70%.
Bellco is no longer issuing Index Advantage certificates, which is a shame. We are at a point where shorter interest rates are rising fairly easily, while longer interest rates generally are remaining stubbornly low. The 44 month Index Advantage certificate offers a mechanism which effectively harnesses rising shorter rates and applies those increases to a longer term CD instrument. You could think of this as one cure for an impending inverted yield curve.
In addition to the above, Fed forward guidance this afternoon is pointing to a good possibility for more Federal Funds rate increases in 2018, Should two more such increases come through, the longer Index Advantage CDs will be paying 3.2% interest.
Caveat
No proper discussion of the Bellco Index Advantage CD product can avoid mention of the product's risk. If the Federal Funds rate falls, so will the rate on your Index Advantage CD.