Now that it is almost impossible to find 3% CDs, I am wondering how many people are abandoning CDs and looking elsewhere to invest their money. I am considering it and wondering who else is contemplating this.
The only CD yields barely worth considering are very long term ones. And I'm not willing to lock up those funds for 7-10 years, considering the future uncertainties about interest rates, just to get a 2-3% guaranteed yield now.
Of my CD funds that matured, I'm putting a portion back into some RCA accounts that pay between 3 and 4% APY -- better than even the longest term CDs right now -- and the rest into some relatively safe dividend-paying stocks such as utility companies and pipeline master limited partnerships (MLPs), all of which -- while not FDIC insured -- are paying better than either the RCAs or any CDs. And have long, un-interrupted histories of rising dividend payouts.
At least if inflation and CD rates rise in the future, I'll have the RCA funds to redeploy if it makes economic sense...and I likewise could get out of the stock holdings too, presuming those holdings don't take a huge dive in value anytime soon. But even if they do for some brief period like the 2009 dive, they're still paying dividends each month/quarter throughout.
I added to my high quality dividend payers in August and September when they were on sale and have been very happy with my decision. In early September, with Operation Twist looming on the horizon, and knowing I had a CD maturing the following month, I raided my lowest-paying RCAs for funds to extend my CD ladder with a 7 year CD for the first time. Thanks to Ken’s work, I was able to find a terrific rate.
Earlier this month I used funds from a maturing CD to reload the accounts I raided. If CD rates rise in the future beyond what RCAs are paying, the RCA funds will start flowing in that direction in staggered fashion.
So, I HATE the idea of LOCKING up money at these rates. But there is no real alternative.
This is just a matter of we responsible savers taking a HUGE hit to bail out the irresponsible people to took out loans far beyond anything they could ever possibly imagine actually paying off. Now we savers bail them out with ridiculously low rates so they can refinance for 30 years at preposterously low rates.
These days we savers are like the ant in Aesop's fable, who worked hard, sacrificed and saved prodigiously to ensure his survival during the winter. However, unlike in the fable, we have no say in whether we support the grasshoppers who played and/or acted irresponsibly, but instead are effectively being forced to do so through meager interest rates.
As a point of reference, seven weeks later, the APY for the same term is now 2.8% at Navy Federal. We surely live in interesting times when we can consider that a good deal, but lowered expectations seem to be the new "normal".