topic Re: Why am I seeing lower rates on longer term CDs? in Personal Finance

Why am I seeing lower rates on longer term CDs?

urbex — Tue, 20 Aug 2024 17:32:25 GMT

Working on getting myself better educated on finances, and getting my savings moved to better performing accounts. I've been browsing HYSA and CDs just as an informational exercise. I am NOT saying that these are the best idea, or that these examples are good rates, just simply an avenue to learn about things. Yes, I know there are ways to get even better rates than these CDs, and again..this is simply an academic exercise to me at this point.

At many places, almost universally, I'm seeing CD rates peaking in shorter time frames. For instance, at Chase Bank -

2 month - 3.25%

3 month - 4.25%

9 month - 3.50%

Cap1

1 year - 4.50%

2 year - 4.00%

5 year - 3.75%

I've seen similar things at other places with things like a 6 month, 12 month, 2 year split with the 12 month being the highest rate. Is this an indicator that the financial institutions are expecting interest rates in general to drop in the near future, or is this a common scenario? Is it just simply a risk vs reward thing, where taking the Cap1 one year is just a gamble that rates won't crater in 12 months whereas the 2 year and 5 year gives a bit of protection against that possible crater over time, albeit at a lower overall rate?

Re: Why am I seeing lower rates on longer term CDs?

GZG — Tue, 20 Aug 2024 17:38:55 GMT

@urbex wrote:
Working on getting myself better educated on finances, and getting my savings moved to better performing accounts. I've been browsing HYSA and CDs just as an informational exercise. I am NOT saying that these are the best idea, or that these examples are good rates, just simply an avenue to learn about things. Yes, I know there are ways to get even better rates than these CDs, and again..this is simply an academic exercise to me at this point.

At many places, almost universally, I'm seeing CD rates peaking in shorter time frames. For instance, at Chase Bank -
2 month - 3.25%
3 month - 4.25%
9 month - 3.50%

Cap1
1 year - 4.50%
2 year - 4.00%
5 year - 3.75%

I've seen similar things at other places with things like a 6 month, 12 month, 2 year split with the 12 month being the highest rate. Is this an indicator that the financial institutions are expecting interest rates in general to drop in the near future, or is this a common scenario? Is it just simply a risk vs reward thing, where taking the Cap1 one year is just a gamble that rates won't crater in 12 months whereas the 2 year and 5 year gives a bit of protection against that possible crater over time, albeit at a lower overall rate?

I imagine it's a combination of a bank's need for the money and risk against interest rates lowering again

no bank is offering competitive CD rates out of the kindness of their own heart, they want the money to lend it out again.

if a bank isn't willing to offer a competitive CD, they are way less worried about getting those deposits over that peroid and don't really care if people go elsewhere with their deposits

Re: Why am I seeing lower rates on longer term CDs?

coldfusion — Tue, 20 Aug 2024 18:15:10 GMT

@GZG wrote:
@urbex wrote:
Working on getting myself better educated on finances, and getting my savings moved to better performing accounts. I've been browsing HYSA and CDs just as an informational exercise. I am NOT saying that these are the best idea, or that these examples are good rates, just simply an avenue to learn about things. Yes, I know there are ways to get even better rates than these CDs, and again..this is simply an academic exercise to me at this point.

At many places, almost universally, I'm seeing CD rates peaking in shorter time frames. For instance, at Chase Bank -
2 month - 3.25%
3 month - 4.25%
9 month - 3.50%

Cap1
1 year - 4.50%
2 year - 4.00%
5 year - 3.75%

I've seen similar things at other places with things like a 6 month, 12 month, 2 year split with the 12 month being the highest rate. Is this an indicator that the financial institutions are expecting interest rates in general to drop in the near future, or is this a common scenario? Is it just simply a risk vs reward thing, where taking the Cap1 one year is just a gamble that rates won't crater in 12 months whereas the 2 year and 5 year gives a bit of protection against that possible crater over time, albeit at a lower overall rate?

I imagine it's a combination of a bank's need for the money and risk against interest rates lowering again

In general it's more the latter - driven by increasing speculation that interest rates are going to start tracking down. It's also considered what is known as a leading indicator of a potential upcoming economic downturn but that isn't a given either. Some of you may have already seen comments in the media discussing the possibility of a rate cut at the next FOMC meeting that starts in exactly 4 weeks.

Try searching online for articles describing what on inverted yield curve is and what it can mean to get more insight.

Re: Why am I seeing lower rates on longer term CDs?

Patient957 — Tue, 20 Aug 2024 19:36:19 GMT

@urbex wrote:
Working on getting myself better educated on finances, and getting my savings moved to better performing accounts. I've been browsing HYSA and CDs just as an informational exercise. I am NOT saying that these are the best idea, or that these examples are good rates, just simply an avenue to learn about things. Yes, I know there are ways to get even better rates than these CDs, and again..this is simply an academic exercise to me at this point.

At many places, almost universally, I'm seeing CD rates peaking in shorter time frames. For instance, at Chase Bank -
2 month - 3.25%
3 month - 4.25%
9 month - 3.50%

Cap1
1 year - 4.50%
2 year - 4.00%
5 year - 3.75%

I've seen similar things at other places with things like a 6 month, 12 month, 2 year split with the 12 month being the highest rate. Is this an indicator that the financial institutions are expecting interest rates in general to drop in the near future, or is this a common scenario? Is it just simply a risk vs reward thing, where taking the Cap1 one year is just a gamble that rates won't crater in 12 months whereas the 2 year and 5 year gives a bit of protection against that possible crater over time, albeit at a lower overall rate?

Two words: Yield Curve.

See, https://www.cnbc.com/us-treasurys/

Basically, the market expects interest rates to decrease over the next several years.

Re: Why am I seeing lower rates on longer term CDs?

IsambardPrince — Tue, 20 Aug 2024 23:33:04 GMT

The economy is in serious trouble and the Fed will have to start aggressively cutting rates soon.

Why would the bank want to lock in high rates for years when they will probably see loan default rates soaring and no opportunity to lend out the money at the profit margin that they want.

If rates are still high in 6 months they'd probably let you roll it over for another 6 months, but they don't want a long term committment at high rates.

My bank used to offer semi-hidden 14-18 month CDs at the same interest as the 6-9, and they got rid of those entirely. They cut rates on everything longer than 9 months, and they increased the rate on the 6 month.

It's coming. They know it. They see it. They hope you won't because when they stuff all the crap they don't want in your retirement fund and then sell based on insider trading, that's how the rich make money during a downturn. It's a huge transfer from the middle class to themselves every time which is why the rich love a good downturn sometimes.

It's still not a bad time to take a defensive position in the bond funds, but I got in at a better one.

If you stay heavily exposed to large caps, you'll get the cratering tech-heavy crash because of all the fundamentals deteriorating while they talk up shares with "AI" buzzwords and go on debt-binges to buyback shares at THESE rates while the company is actually falling apart, and expensive coffee chains that are seeing overseas sales collapse by double digits, and 6-7% in domestic markets.

If you stay heavily exposed to the Russell 2000, you'll get whacked harder because many of those companies were speculative to begin with, turning no profit, and running on cheap debt while it existed, so you'll get a lot of them declaring bankruptcy, and stockholders usually get nothing in a liquidation.

The reason why SVB depositors were bailed out using FDIC insurance on non-insured funds is the optics of having California basically fail and go into recession because all the Bay Area tech companies were storing payroll in uninsured accounts at places like this.

You would have suddenly had hundreds of "founders" of unprofitable "tech" companies unable to make payroll the next time it went out and go to bankruptcy court instead, and the recession would have happened then.

Officials never want a recession to be declared before an election. It almost always ends up costing them their incumbency. Before November bad, after November fine. Good luck out there.

There are very few CEOs that believe in the company and want to help it grow these days. That was 20-30 years ago. Today's CEOs are there to strip mine existing large companies, and to run just enough of a company to say there's a "startup", off of debt, and then put it into liquidation after they pay themselves a lot of money. Investing in this environment requires a holistic approach and a somewhat cynical mindset.

Things don't have to be this way, but as long as it's allowed and rewarded by society overall, all you can do is try to get out of their way and find opportunity where you can.

We're dealing with a classic example of moral hazards being allowed to go on simply because they benefit the wealthy.

A long time ago, layoffs and companies going bad were seen as a failure of management, and now it's just seen as another way of management slithering around and making money, as a good thing.

In many ways, the "recovery" from 2008 was not a recovery. We eventually dealt with a burst of hyperinflation over moves by the central bank to "cover up" the damage, it just took a while.

The low interest rates of more than a decade didn't just unleash that on us, it helped companies that were basically dead but able to go on walking, also known as Zombie Corporations.

In part due to the constant bailouts and now the high interest rates on the public debt, the federal government adds a trillion dollars to the national debt every 100 days or so. Remember that just 15 years ago, they added a trillion dollars for an entire year, and that's with all the stimulus and jobs programs, and it was considered a terrible deficit for an entire year.

Things across the board are now so screwed up that it's hard to predict what will even happen next, but I don't think it's possible to repair.

Re: Why am I seeing lower rates on longer term CDs?

FicoMike0 — Wed, 21 Aug 2024 00:55:04 GMT

Yields do go down with increasing term. I don't see any cds that interest me. I can get 5+% on daily demand accounts. I have money in a managed fund called fidelity go. Not fdic, but it's up 12% in less than a year.

Re: Why am I seeing lower rates on longer term CDs?

IsambardPrince — Wed, 21 Aug 2024 05:05:22 GMT

@FicoMike0 wrote:
Yields do go down with increasing term. I don't see any cds that interest me. I can get 5+% on daily demand accounts. I have money in a managed fund called fidelity go. Not fdic, but it's up 12% in less than a year.

Yeah, and there's a big fat disclaimer saying it could all be gone tomorrow and there's nothing that anyone will do to help you get it back.

That's not a great risk on cash savings that you may need to actually be there.

I hope they gave you a disclaimer since nobody really knows what's going on in there.

The retirement account the Catholic Church put my mom's 403(b) money into was managed by RiversEdge. For months after the fund manager was caught embezzling from at least, I think, 17 different funds, they just put a freeze on everything while the Catholic Church had a mass layoff that forced my mother into retirement.

I think that RiversEdge was affiliated with Charles Schwab because you had to go to a Schwab website to log into her plan.

So just when she needed her money, bam, frozen. "Hold on while we figure out if this crook stole YOURS too!" Right as she needed it.

She eventually got it, several months later, but people who were in the funds that got raided, they got very little back in some cases. They put their money in there over the course of an entire career into that one account, and according to the feds, sometime around November 2023 "the embezzlement accelerated". They didn't even stop the guy until January, and he's still not even being charged criminally yet the last I heard.

My God, if he was poor and got caught with a stolen car, he'd never see the light of day. Here he is with his passport and everything.

The judge has ruled, so far, that millions of dollars have been embezzled from the 17 plans, and that in just one instance, one of the conspirators went into a PNC bank and walked out with $180,000 in cash.

Also, outside the US, but worth mentioning.

My friend in the UK worked for a software company that was giving him pension statements on the letterhead of the institution where they said his paycheck deductions were going.

Turned out that his boss was spending it all and there never was an account.

I think that for a large part, these outfits just rely on a new generation every 20 years that don't remember that someone steals your pension and wipes you out every 10-15 years or so.

If my spouse's employer would just give him the match and let us put it somewhere, I'd have been buying IRA CDs because they're FDIC insured.

I don't personally particularly trust Merrill Lynch myself. They seem to help themselves to fees constantly, their investment fund options suck, and frequently, logging in to see what your account balances are doesn't seem to work, and they put him down as "Female" and it took years to fix that.

FDIC insurance on your savings is not worth nothing.

It's your only guarantee that when the morons and crooks running the bank and playing with fire blow themselves up, your life savings doesn't go away into whatever they really had it in.

Even if there's no embezzlement scandal, these people will make collateralized debt "assets" out of anything, anything, including some of the hare-brained schemes that I've seen some people on these very forums engaging in. Subprime car loans? Sure! $40,000 a year and wants a $300,000 mortgage that will come out to over twice that with interest and fees and taxes? Why not?

I'm not even going to spare myself, because I'm an example of how ridiculous banks are.

About 10 minutes after I got my bankruptcy discharge, and the mushroom cloud was still visible in the distance, they started giving me credit cards again and today I have a combined credit limit of over $60,000 I think.

FDIC insurance.

You want it on your deposits.

I love CDs. They're not the highest rate of return but I don't trust what anyone tells me, especially banks. I want some assurances that when the feds are in there shutting them down on Friday, my money will be available on Monday.

When the bank turns around and loans money to some fools, you don't have to worry about the bank failing due to poor investments.

Re: Why am I seeing lower rates on longer term CDs?

IsambardPrince — Sat, 24 Aug 2024 07:28:45 GMT

Bank cut rates on most CDs today by 0.1% on the Fed meeting and I expect it to get worse soon. Had some no penalty CDs coming due next month but I cashed those out and refinanced. Even though it goes from 4.55% to 4%, I get another 11 month term on them and the bank hasn't lowered the interest rate on the no penalty tier yet.

These are just enough money that it's an emergency fund that the bank can't screw around with as far as interest. The new rate is currently 0.2% below my MMSA, but that's variable and can change any day.

Plan to redeem these no penalty CDs every 6 days (you can't take them for 6 days, but they're no penalty after that) and reinvest them as long as the 4% remains UNCH so that I get something close to an entire 11 month term once rates on this tier start to fall. Did it now because there was so little time remaining at higher interest rate.

Less immediate savings were more substantial and got reinvested at 6 months at 5% and 9 months at 4.85% to join some 14-18 month ones.

Good time to rebalance.

Expect that Fed will react too slowly and too late to the recession we are most likely in right now.

Many jobs postings are absolutely fake, according to CNBC. Employers f-ing with people to figure out how to lower salaries and what people would expect if they hire later, wasting applicant time and resources for job interviews.

CNBC states that already in 2023, at least 1.7 million fake listings on LinkedIn.

Serious problem. Many people I know are striking out whether tech worker or even if they're giving up and would settle for low wage service job.

Walmart cutting hours across the country.

The way I see it is that the jobs market cracked like an egg sometime around 12 months ago. The downward revisions this month were serious, but the Fed is paying attention to JOLT, where employers can insert bad data by claiming they have an opening even when they never plan to hire anyone.

The Fed relied on bad numbers, now it hopes it's not too late to start cutting slowly. It knows half a point at once will be interpreted as an economy in trouble, so there is intense pressure to not cut rates enough. Even half a point wouldn't be enough, so they'll do a quarter.

Re: Why am I seeing lower rates on longer term CDs?

TrapLine — Sat, 24 Aug 2024 12:07:49 GMT

Great question. No change in the Federal Rates but financials jump on the early potential and reduce ...

Suspect however, there will be reductions as even Powell says it is time.

Re: Why am I seeing lower rates on longer term CDs?

IsambardPrince — Sat, 24 Aug 2024 20:25:32 GMT

@TrapLine wrote:
Great question. No change in the Federal Rates but financials jump on the early potential and reduce ...

Suspect however, there will be reductions as even Powell says it is time.

The reason I feel the Fed won't react quickly enough is that if you look at major policy decisions in the past, it never has before.

A particular former President says he wants to start micromanaging the Fed, which worked out great in 1972 didn't it?

Also, an entirely different current VP says they want price controls. Which worked out great in 1972, didn't it?

We had a politicized Fed in the early 70s keeping rates too low to swing an election, this contributed greatly to hyperinflation even though economic growth still sucked. On top of that, the US had wage and price controls that attempted to break the cycle of consumers, workers, and businesses getting used to higher prices.

By the time the wage and price controls lifted, inflation came roaring back with a vengeance and by the time anyone at the Fed jacked up the rates, it had such a detrimental impact on the economy that it helped swing another election, and we got The Gipper.

The Fed isn't independent, not really. They like to say it is. Their policy decisions are decoupled from reality and coupled intrinsically to the political environment. They set rates too low throughout much of the 2000s to help accomodate the "home opportunity" scams that the banks were peddling, then jacked them up and knocked people out of their houses due to ARM resets, and then the housing crash happened.

Businesses took advantage of the Great Recession to finish piling out of the country while nobody stopped them and taking a lot of the good jobs with them.

The response to 2008 was an era of cheap money. This led to "jobs" at businesses that shouldn't exist. It made it too cheap to borrow money, so people kept companies that were unprofitable going and it caused speculative investing in everything from tech startups with no products that are viable, to cryptocurrency. Then they hiked rates again when it let loose with inflation, and the speculating is crashing and burning because they run out of cheap money.

Some of the tech startups I watch in California have given up raising funds from venture capital and have started selling shares and going public even though they continue to burn 15 times as much money as revenue. They're trying to keep going until cheaper money comes back and by then it will be too late for most of them.

The lending that continues to go on, is largely people who won't take the hint that these rates are unacceptable for cars and houses and keep using credit cards att 30% interest to prop up their foam latte habits.

Will not end well. Not well at all.

But take the rates while you can get them if you're a depositor.

Keynesian Economics is basically quackery, it's been proven to be nonsense so many times, and yet it dominates because it makes it easy to justify bloated government budgets that cause inflation without real economic growth, and easy money even when the results are inevitably going to be hyperinflation at some point.

People say that Keynesian Economics, particularly government overspending and impossibly low rigged interest rates are fine, because if you start doing that in 2008, you may not see the results until 2021-2024, and when the hyperinflation starts, you get the Fed which stated it would be temporary and go away in a couple of months without them doing anything, and then when it doesn't, they raise rates, but then the economy collapses and they abandon the committment to fight inflation.

It's almost maddening how stupid these people are.

The Fed doesn't know what it's doing. It's like being in the backseat of my dad's car where he would take off like a race car driver then wait until the last three feet before a stop light and stand up on the brake pedal until everyone bailed out of the car and vomited.

Re: Why am I seeing lower rates on longer term CDs?

Pppoolboy — Sun, 25 Aug 2024 11:49:35 GMT

Whoa easy there tiger. While I can't find fault with what you say, I believe that economic downturns are a necessary and wonderful thing. They "shake the dead leaves from the tree" as it were. The longer a modern economy goes without some sort of recession, the more bloated, inefficient and corrupt that economy becomes. And then when the inevitable correction happens, it's worse than it otherwise would have been.

If the powers that be are pushing our society into recession, it's way past due. Although I'm a bit biased. I do bankruptcy law and the wave of bankruptcies that should have begun again around 2020 has been artificially delayed for too long with a bunch of duct tape wrapped around the economy. It's got to take a dump soon because, if it doesn't, then the dump it finally takes will be a really big, sudden and painful one.

Re: Why am I seeing lower rates on longer term CDs?

IsambardPrince — Sun, 25 Aug 2024 21:52:33 GMT

@Pppoolboy wrote:
Whoa easy there tiger. While I can't find fault with what you say, I believe that economic downturns are a necessary and wonderful thing. They "shake the dead leaves from the tree" as it were. The longer a modern economy goes without some sort of recession, the more bloated, inefficient and corrupt that economy becomes. And then when the inevitable correction happens, it's worse than it otherwise would have been.

If the powers that be are pushing our society into recession, it's way past due. Although I'm a bit biased. I do bankruptcy law and the wave of bankruptcies that should have begun again around 2020 has been artificially delayed for too long with a bunch of duct tape wrapped around the economy. It's got to take a dump soon because, if it doesn't, then the dump it finally takes will be a really big, sudden and painful one.

Recessions are bad and they're good.

Obviously nobody wants to see people lose their home and investments and retirement account and decide to walk out in front of the Metra, which is unfortunately a thing. I think it says we need a better safety net.

But at the same time, they happen and you need to be situated and not letting the good times roll when one hits. You need to be developing a defensive investment strategy now. If you haven't already. This economy is about to go nowhere, and south, for a year or two, and it's time to play defense while others are letting the good times roll.

That means selling off your stocks. They're on fire, and unsustainable, investing in the bond market, which is still undervalued. It was more undervalued when I started pouring our retirement money out of stocks last year, and you need to get rid of all your debt and have savings.

Many people will have $0 in savings and $40,000 in credit cards and $60,000+ in car loans, and a huge expensive mortgage they got at 7.5%, and walk into work one day and there will be security telling them they got fired, or they'll be on a credit card-fueled vacation floating on a pool and get fired by text.

Then there's people who have no debt, and $40,000 in savings and more in an investment account they really don't want to touch but could if work isn't there and the only thing they draw is unemployment checks.

There's way more people with nothing and that's where you get the panic and stress from.

I filed bankruptcy in 2020. It was a hell of a way to start my marriage. I said "Hi, nice to meet you. Here's where this last guy left me and I'm destitute." and life was kind of bad for a while because I got carried away with debt living like the typical American and I got knocked upside the head.

I won't make that mistake again.

The Illinois unemployment system is such crap that I make sure we dust off our unemployment logins every now and then so they're ready to go in case work isn't there one day. So we don't get blindsided and have to drive 50 miles to the nearest office and have someone poke around with a computer. This economy sucks.

UI won't be enough but it is enough that you don't burn through your savings nearly as fast or have to start taking on debt.