Before savings rates plummeted, it was a reasonable question to ask whether it was worth giving up the freedom of a 1% savings account in order to 3% or 4% long term CD. A 200 or 300 basis point difference is substantial; and a three or four percent no risk return is, for many people, a healthy part of an overall financial plan, and worth giving up liquidity.
However, in these days of the Fed's zero interest rate policy; we are faced with a different decision: Should we give up our .50% interest savings account to invest in a 1% long term CD? Let's say you have $20,000.00 to invest. If you move your 1/2 percent savings to a 1 percent long term CD, you will earn $200.00 a year instead of $100.00. Is that extra 100.00 (or extra 125.00 if you find a 1.25% CD) worth giving up the liquidity of those funds for several years; or to face a steep EWP if you need to withdraw them early? Let me ask another way: If a friend called you up and said, "I'll send you a check for $100.00 tomorrow if you promise to place your $20,000.00 in a vault and not touch it for five years, you would question your friend's sanity. Yet that is exactly what we do, when we invest in long term CDs with low interest rates. In my view, giving up liquidity for such paltry gain is generally not a wise decision. During this time of such low interest rates, there are several options with better returns: paying down debt, making necessary major purchases, investing in the stock market, etc. But remember that liquidity of funds is a precious thing; please make sure it is worth your financial while; don't give up your financial freedom for a few dollars more.