Long Term Bank CD’s (certificates of deposit): Should I Invest?

Although we’ve seen long term CD rates tick upward ever-so-slightly over the last month or so, we still maintain the stance that you should resist the urge to move forward with these products based on tiny rate hikes. Many banks have been throwing their net out into the plentiful sea of eager savers in an attempt to catch a fresh batch of customers using their small rate hikes as bait. Sure, earning an FDIC insured 3.0% per year might seem favorable to those looking for the best CD rates – even if it means keeping your money tied down for 3-5 years, but you must look beyond the short term gains. While the highest yielding long term CD’s might seem attractive for the first year or two, the latter years will leave you with very little (if any) gains.

Why?

First, almost all financial analysts suggest we are headed towards a time of rather steep inflation (not to mention a 3% inflation rate is considered average by most analysts). The only debate on this matter is WHEN it will kick in. Second, taxes paid on interest and investment gains stand to eat at your more handsome looking profits in the short term. And third, we are at the end of a steep valley in savings rates. And as a general rule of thumb, you normally want to lock in long term CD’s when the market has peaked and is beginning to trend downward, not the exact opposite – which is what we are currently enduring.

Not convinced? Still think long term CD’s are a good investment strategy? Take a look at Chuck Jaffe, of MarketWatch.com’s article entitled “Stupid Investment of The Week: Don’t go long on CD rates now” for further evidence.

In the article he suggests seeking a “Rewards Checking Account” if you are looking for an FDIC insured investment vehicle with phenomenal returns and decent flexibility – a suggestion we made early this year by proclaiming Rewards Checking Accounts as the best FDIC insured investment vehicle of 2009.  After you’ve learned the basics of those accounts you can stack them up against the current 5 year CD rates to help you make an educated decision.

Additional Note: We also think Cash Back Checking Accounts are a great way of having your money work for you by providing monthly dividends in the form of cash back.

Best 3 year CD rates yielding 3.0% APY

You will be hard pressed to find 3 year CD rates yielding above the 3.0% APY mark (especially if you are looking for certificates of deposits available nationwide). The top 36 month CD rates in which we have come across over the course of November have come from either credit unions or national banks.

The best of them comes from Flagstar bank which has a three year CD yielding 3.0% APY. You must deposit a minimum of atleast $500 to receive this interest rate. Flagstar’s current rates on their CD’s take an interesting yet profitable jump from the 30 month to 36 month term. Their 30 month CD only provides yields of 2.16% APY and their 36 month CD provides a much more lucrative 3.0% APY. One thing to note is that you must type in your zip code before being provided with their interest rates. After testing a number of zip codes in major cities throughout the country we have found that the 3 year CD yielding 3.0% APY is fairly common.

The next best interest rate is also a 3 year CD with a 3.0% return, however it comes from Alliant Credit Union which has some fairly strict requirements for eligibility. Currently you can invest in a 3 year CD with the 3.0% return if (A) you deposit atleast $50,000 and (B) you fit the following requirements:

• live or work in the following Chicagoland communities: Arlington Heights, Bensenville, Des Plaines, Elk Grove, Elmhurst, Franklin Park, Harwood Heights, Itasca, Mount Prospect, Northlake, Niles, Norridge, Park Ridge, Prospect Heights, River Grove, Rolling Meadows, Rosemont, Schiller Park, Wood Dale and Chicago O’Hare Airport property
• Any person related by blood or law to an existing member
• Domestic partners of unmarried members

If you cannot deposit the $25,000 minimum you will still earn a respectable 2.85% APY. If you happen to know of a better 3 year CD rate, please share by leaving a comment!

Montauk Credit Union’s CD (certificate of deposit) rates

Thanks (again) to BankVibe reader and contributor FarmerFrank for pointing out some very nice CD rates this time coming from a credit union in New York state.

Montauk Credit Union is a non-profit, member-owned, financial institution with roughly 4,500 members and $50 million in assets. They were chartered in 1922 and open serve customers nationwide. To become a member you will incur a one-time fee of $25.00, after that there are no fees associated with Montauk CU.

Current CD Rates:

12 month CD: 2.75% APY

18 month CD: 3.00% APY

2 year CD: 3.25% APY

3 year CD: 3.50% APY

4 year CD: 3.75% APY

5 year CD: 4.00% APY

7 year CD: 4.50% APY

Rates in effect as of 5/01/09 and are subject to change without notice.

Consistently high APY with Discover Bank

If you are in the market for a CD (certificate of deposit) and are looking for yields higher than the national average, then you may want to check out Discover Bank’s current rates.

In most cases Discover Bank’s CD rates beat the national average by roughly 30% to 50%. The best yields from Discover Bank (when compared to the national average) typically come with longer durations such as 2, 3 and 5 year maturities.

Discover Bank CD Rates VS National Average

To see a complete list of Discover Bank’s CD rates click here.

If you have experience in banking with Discover Bank, please leave a comment on this post.