Rising-Rate CDs Not All They're Cracked Up to Be

NEW YORK, Dec. 1, 2014 /PRNewswire/ -- With interest rates expected to rise in 2015, investors might be considering rising-rate CDs, but a new Bankrate.com (NYSE: RATE) analysis of 150 banks and credit unions found they almost always favor the financial institution.

Liquid/No Penalty CDs

• These products provide investors with a way to access some or all of their investment prior to maturity without penalty.
• During the survey period, the top-yielding nationally available online savings account was 1.05%, which exceeded the yields offered on any of the liquid CDs with maturities of two years and under.
• While Bankrate found three- and five-year liquid CDs with yields exceeding 1.05%, the yields still fell short of what could be obtained on the top-yielding nationally available three- and five-year traditional CDs.

Bump-Up CDs

• Bump-up CDs give investors the option to increase their rate at some point during the term should interest rates rise.
• However, the yields offered on the bump-up CDs in the survey fell short of the top-yielding nationally available traditional CDs of the same maturity, often by a wide enough margin that there is no hope of 'bumping up' to a high enough yield to offset the lower initial yield.
• The highest-yielding two-year bump-up CD in the survey paid 0.85% APY, while the top-yielding nationally available traditional two-year CD earned 1.5% APY.

Step-Up CDs

• Step-up CDs offer predetermined increases in the rate at specified periods during the term.
• In all cases that Bankrate analyzed, the blended APY (accounting for the amount and timing of each scheduled increase) fell well short of the top-yielding traditional CD.

Callable CDs

• These can be called in prior to maturity at the issuing financial institution's discretion and are typically a 'heads I win, tails you lose' proposition.
• If the yield is attractive, it will likely be called so the institution can reissue at a lower yield.
• On the other hand, a yield that only appears attractive if the CD is called in quickly probably won't be called in because the CD is unlikely to be reissued at a lower yield.

"All of these products sound good in theory, but in practice, we didn't find much value for investors," said Greg McBride, CFA, Bankrate.com's chief financial analyst. "Rising-rate CDs are not necessarily a bad deal, but savers can often do better by shopping around for the best returns on online savings accounts and traditional CDs. And with interest rates likely to remain low for a while longer, investors should also seek yield from other parts of their portfolios such as high-quality bonds, dividend-paying stocks and real estate investment trusts."

More information is available here:

http://www.bankrate.com/finance/cd/liquid-cds.aspx

Bankrate.com surveyed the 10 largest banks and thrifts in the 10 largest U.S. markets, as well as the nation's 50 largest credit unions, between October 2-15, 2014. 108 of these institutions offered at least one rising-rate product.

About Bankrate, Inc.

Bankrate is a leading publisher, aggregator and distributor of personal finance content on the Internet.  Bankrate provides consumers with proprietary, fully researched, comprehensive, independent and objective personal finance editorial content across multiple vertical categories including mortgages, deposits, insurance, credit cards, and other categories, such as retirement, automobile loans, taxes and senior living.  The Bankrate network includes Bankrate.com, CreditCards.com, InsuranceQuotes.com and Caring.com, our flagship websites, and other owned and operated personal finance websites, including Interest.com, Bankaholic.com, Mortgage-calc.com, CreditCardGuide.com, CarInsuranceQuotes.com, CreditCards.ca, and NetQuote.com. Bankrate aggregates rate information from over 4,800 institutions on more than 300 financial products. With coverage of over 600 local markets in all 50 U.S. states, Bankrate generates over 172,000 distinct rate tables capturing, on average, over three million pieces of information weekly.  Bankrate develops and provides web services to over 75 co-branded websites with online partners, including some of the most trusted and frequently visited personal finance sites on the Internet such as Yahoo!, CNN Money, CNBC and Comcast. In addition, Bankrate licenses editorial content to over 100 newspapers on a daily basis including The Wall Street Journal, USA Today, The New York Times, The Los Angeles Times and The Boston Globe.

For more information:

Kayleen Yates
Senior Director, Corporate Communications
[email protected]
(917) 368-8677

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SOURCE Bankrate, Inc.

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