How to beat low-yield bank CD rates

If you're banking on CDs to become your personal financial stimulus, think again. In 1985, five-year bank CDs averaged approximately 10 percent interest, but today have slumped to an average nearly 8 points lower, according to Bankrate's chart on CD rates history, 1984-2010 -- and a rate rebound is nowhere in the immediate future. But there are other ways to beat today's uninspiring low rates. These three tips can help you earn more.

Check in

The annual percentage yield, or APY, for a five-year bank CD currently tops out near 2.4 percent, but some high-yield checking account rates exceed 4 percent. There are a few restrictions to getting these above-average interest rates, and many of these accounts have balance caps below $25,000. However, the increased earning potential paired with increased liquidity can make these accounts a solid option for beating CD rates.

According to Tarron Khemraj, Ph.D., assistant professor of economics at New College of Florida, "We can expect rates to stay low in spite of the downgrade. Savers are adversely affected because of the very low savings and CD rates. Factoring inflation, savers are earning negative returns on deposits."

Get risky

CDs offer the trusted protection of Federal Deposit Insurance Corp., or FDIC, insurance for deposits up to $250,000, but investing in the stock market can yield greater dividends -- if you can handle the risk. Investing in stocks requires research, strategy and some sleepless nights of concern about potential loss.

Go short

If you prefer to lock your money in CDs, do not lock it away for too long. Rates are lingering near their lowest point in years, and a certificate of deposit with a five-year term will be a reminder of this dismal investing period while you are stuck with the same low rates until 2016.

Consider your financial goals before making investment decisions. Are you saving for a specific event? If so, when will you need to access your cash? Then, compare savings rates to determine what kind of investment tools, such as bank CDs and interest rates, will help you get there.


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