One could make a valid argument currently for 3 year CD’s as being a decent investment vehicle in today’s landscape for those on the hunt for FDIC insured bank deposits.
Why 3 year CD’s?
Because interest rates are horrendous and are expected to remain this low for the foreseeable future. We made a similar argument based on this reasoning for 2 year CD’s a short while ago but we believe the same could likely apply for 36 month deposit products as well.
Basically the FED has made it quite clear that interest rates are not going to rise anytime in 2012 or 2013. And as a hunch, we see it completely rational to assume that key rates could also remain at these historically low levels even through 2014 as well.
A number of economical factors must change (and rather dramatically at that) for anything significant to change on the interest rate front for savers within the next 3 years. First, regardless of the record low mortgage rates for both new home purchases and refinancing, there is still a vast supply of homes on the market (and in foreclosure) that simply aren’t selling. This dynamic gives the FED absolutely zero incentive to increase rates when homes can’t even sell with the lowest mortgage rates we’ve seen in decades. Second, the jobless rate is still sitting at an unprecedentedly high rate which means there is a shortage of potential home buyers to soak up this plethora of real estate on the market. So while these factors need to make a positive turn for interest rates to begin to rise we find it highly unlikely.
That being said, rates will inevitabley rise again. So for those looking to lock in the most optimal rates for our current economic conditions, which then free up these funds at a time when savings rates could be on the rise again, we find the 36 month deposit as one of the best FDIC insured savings product to take advantage of in 2012.