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CD Historical rate average
Old 04-12-2018, 09:45 AM   #1
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CD Historical rate average

With interest rates on the move, those that use CD's, is there a certain rate you might lock in for an extended time frame? Read a little about the crazy cd rates in the early 80's but not really found anything that states a good past average rate for CD's during better economic times. Right now, I currently don't have anything past 18 mths. I know all times are different just personally don't really have more than maybe 3-4ish yrs experience with CD's. TIA
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Old 04-12-2018, 10:03 AM   #2
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I would consider consider locking in any rate that I think will beat inflation (after taxes) when it comes to the CDs. I imagine that would be in the area of 4% and more. By 'lock in' I mean 2-5 years.
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Old 04-12-2018, 10:04 AM   #3
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Earlier this year I signed up for a couple of 1yr CDs so by the time those mature hopefully the CDs rates will be more lucrative...I'd be happy with anything around 5% to lock in the rates longer term.
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Old 04-12-2018, 10:11 AM   #4
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I don't know of an average, but I think of it as a process of diminishing returns. When I look at CD's, I evaluate how much more I can get for locking in longer. Right now, A quick look at Fidelity and the 6mo versus the 12mo is 1.9% vs 2.1%. That's not enough for me to go to a year if I'm looking at a short term. The one year to two year is 2.1% to 2.65%. Generally, I might consider that however, in what appears to be a very clear rising interest rate environment, the 1/2 percent for the extra year does not seem reasonable to me. The one year to 5 year is 2.1% to 3.00%. Again, maybe that's enough if I just wanted to set it and forget it, but the raising interest rate environment just doesn't make it reasonable to lock up money for that long for that little difference. On $100,000 the difference is about $900 per year. Not chicken feed, but not that significant.

I guess I'm just not seeing anything that would make me want to lock in a rate for more than one year at this point. I think locking in rates makes more sense when you believe the rates are historically high and coming down. While I'm no predictor of the interest rate market, I don't' think there is any doubt that we are at a low point and going up. FWIW, my gut tells me that historical real interest rates (after inflation) run a couple percent (say 2-4%).
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Old 04-12-2018, 12:13 PM   #5
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Interesting. Currently most CD's are "non-callable". Do the banks start making the CD's callable when the rates get to a higher point?
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Old 04-12-2018, 06:40 PM   #6
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I'm not sure what purpose is served by looking at historical rates. All that matters is where interest rates are now and what predictions are being made about future changes in direction. Most CDs can be purchased with a fairly short early term cancellation penalty so even if you lock in and rates go up you can always cash out and reinvest. So why worry about something that you can't predict anyway.
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Old 04-12-2018, 07:12 PM   #7
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Interesting. Currently most CD's are "non-callable". Do the banks start making the CD's callable when the rates get to a higher point?
If a fixed income product like a bond or CD has a call feature, I think the issuer would only be attracted to calling it if rates drop.
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Old 04-12-2018, 07:19 PM   #8
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Interesting. Currently most CD's are "non-callable". Do the banks start making the CD's callable when the rates get to a higher point?
For new issue brokered CD's on Fidelity, once the term hits 5 years, many of those CD's have callable features.
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Old 04-13-2018, 03:24 AM   #9
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What I have read is that the best bet is 1-3 years currently-not to lock up longer since the treasury sell off by the Fed and increasing inflation numbers will eventually increase longer rates over time.

Sit pat, fingers crossed, with 1.5% in high interest savings, or lock in 2.35-2.85% on 18 mo. to 3 years while waiting for higher 5 year rates? That is the question....

1-3 year laddering looks pretty good, IMHO
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Old 04-13-2018, 05:20 AM   #10
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I'm not sure what purpose is served by looking at historical rates. All that matters is where interest rates are now and what predictions are being made about future changes in direction. Most CDs can be purchased with a fairly short early term cancellation penalty so even if you lock in and rates go up you can always cash out and reinvest. So why worry about something that you can't predict anyway.
History is a baseline indicator of the possible range of outcomes. That's why.

A hurricane might hit my house, but there hasn't been a hurricane here as far as recorded history goes back. So baseline it's not my top priority. I do check however if there are reasons to deviate from that baseline.
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Old 04-16-2018, 07:22 AM   #11
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My strategy (if one could call it that) is to watch the yield curve, and mostly the 10 year - 2 year treasury spread. It is pretty low, so I am staying shorter on the CD duration's, one to two years max.

Here's a chart: https://fred.stlouisfed.org/series/T10Y2Y.

The game here is to try to lock in longer term rates near the peak. As with most things, that is easier said than done.
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