| 6-percent CDs: Lock them up |
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"You have to look at the purpose of the CD; is
it to preserve capital or to spin off an income stream? If I had
a choice between a one-year CD and a five-year CD, both at 6 percent,
I'd buy both. We have our clients keep a reserve of a year to 18
months in cash, and this is a perfect vehicle for that. And also
consider it for an investment in the portfolio. (At these yields)
it has long- and short-term merits. People have to look at what
they're trying to accomplish."
In addition to banks and credit unions, many brokerages offer high-yielding CDs. Brokerages typically carry CDs that are being offered by banks across the country. It's an easy way for customers to buy CDs at top rates from multiple institutions without having to open individual accounts at each bank.
Peter Crawford, vice president of brokerage products
at Charles Schwab, says the firm recently listed a 6-percent, five-year
CD that sold out quickly. But other than that offering, which was
the first five-year CD at that yield, customers are sticking with
shorter maturities.
"Clients are scooping up the three-month CDs
but haven't demonstrated the interest yet in the five-year. (For
the most part) there's only about a 30-basis-point difference between
them. But as we get above 5 percent, a lot of money is moving into
CDs."
As the Federal Reserve ceases raising short-term rates,
expect to see yields on short-term CDs shrink. Banks, which have
been stymied by the flat yield curve, will likely try to push consumers
toward longer-term CDs, so you may see an increase in five-year
CDs at the 6-percent level or better. But, as has been mentioned,
don't sit on the fence too long waiting for 7 percent. It may come,
but you could be passing up a very worthwhile return in the interim.
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