Bank CD Rate Forecast

Sometimes I hate being right. I am often asked for a forecast of bank cd rates and last week I made a doozy. Unfortunately, it seems to be coming true.

I predicted that 1-year CD rates would be heading towards 0.50% and 5-year CDs down to 1.50%. When you remove the top players, we are quickly approaching those numbers. Which also means that the top players are likely to begin going down. (And we saw some of that this week)

Institutional jumbo CD investors are especially hard hit. The top player such as Alliant Federal Credit Union still had a 1.75% APY for 1-year, however it dropped to 1.60% this week. Sadly it is still one of the top 1-year rates. Unfortunately it isn't available for institutional CD buyers. And once you have $250,000 of personal funds with them you have to move on down the list. The average for the top 10 and top 20 certificate of deposit rates is quickly decreasing.

As with any investment vehicle, those who try to time the market generally don't fare so well. That is why I believe long-term CDs with low penalties are a good option. You get some better yield now and have a fixed cost to close if rates go up anytime soon. Of course, rates rising anytime soon doesn't seem likely.

Here is an example of a 5-year CD with a 90-Day penalty and how it performs when compared to straight term CDs. The rate is a 3.00% APY and if you invest $100,000 you will earn $3000 every year for the next five years. The penalty to close is a fixed cost of $739.73. If you decided to close your CD after one year, your net earnings would be $2,260.27 and that would the same as investing in a 1-year CD at 2.26%. I haven't seen too many of those lately. After 2-years it would be the same as a 2.63%. So you can outperform the current CD market by adding some long-term CDs with penalties that aren't too high.

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Chris Duncan is a FINRA Registered Representative. He works for Jumbo CD Investments, Inc., a leading CD research and placement firm. He specializes in helping clients find the highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us at Best CD Rates