Tags: flexible | rate | CDs | risks

WSJ: Flexible-Rate CDs Can Offer Higher Yields, But Higher Risks Too

By    |   Monday, 12 May 2014 10:44 AM

Investors frustrated with low interest rates on their certificates of deposit (CDs) can now opt for CDs with a flexible interest rate, but risks abound, The Wall Street Journal warns.

Terms can be complicated, and penalties for early withdrawal can be lofty. It's understandable why savers would be looking for a flexible yield. The average rate this month for five-year CDs is 0.78 percent, which is only 0.69 percentage point higher than the rate on a savings account, according to Market Rates Insight. Savers are concerned that if they lock in their cash at the low CD rate, they could miss out on greater earnings if rates rise.

Banks are responding to a decrease in CD balances. CD balances totaled $1.64 trillion at the end of 2013, down 5 percent from 2012 and 10 percent from 2011, according to the FDIC.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

In March, the Nassau Educators Federal Credit Union (Nefcu) of Westbury, N.Y., offered a 20-month CD with a 1.05 percent yield that can increase once, The Journal explains.

Depositors can receive an increase upon request if the credit union lifts the yield on its standard one-year CD, to more than 1.05 percent, from 0.6 percent currently, Nefcu's Laureen Straub tells the paper.

Other banks have similar offers. Obviously savers can do well if rates rise. But many of the banks, like Nefcu, won't raise the CD yield unless customers ask. And most customers neglect to do so, Dan Geller, executive vice president at Market Rates Insight, tells The Journal.

In addition, the banks may not boost their regular CD yields quickly when interest rates in general are rising.

Interestingly enough, short-term interest rates near record lows and stock prices near record highs apparently aren't convincing Americans to invest in equities, a recent poll shows.

Of the 1,010 adults who participated in the Bankrate survey, 73 percent said they are not inclined to invest in the stock market now that interest rates on savings accounts and CDs are so low, while only 22 percent said they are more inclined to do so.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Investors frustrated with low interest rates on their certificates of deposit (CDs) can now opt for CDs with a flexible interest rate, but risks abound, The Wall Street Journal warns.
flexible, rate, CDs, risks
387
2014-44-12
Monday, 12 May 2014 10:44 AM
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