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Chasing CD yield a no-brainer

By Claes Bell, CFA · Bankrate.com
Monday, March 14, 2011
Posted: 1 pm ET

If you're a CD investor, no one needs to tell you that CD rates are depressingly low right now. But it's worth remembering that despite three years of sliding yields, there is still a significant difference between the average CD rate and the highest yield CD rates out there. So if you're still rolling CDs over at your neighborhood bank out of habit, odds are you're suffering more than you need to from the slings and arrows of outrageously low yields.

For instance, Bankrate's national survey last week pegged the average 1-year CD yield at 0.47 percent. But on Bankrate's CD rate database, a search for 1-year CD rates showed yields of up to 1.35 percent available online. Sure, a yield of 1.35 percent isn't going to make you rich, but a $10,000 CD at 1.35 percent will yield $135 in interest, compared to just $47 at that 0.47 percent rate -- a gain of $88.

The gap persists as you go out to longer maturities. Bankrate's weekly average yield for a 5-year CD was 1.71 percent. Meanwhile, I was able to find a 2.71 percent interest rate for a 5-year CD in Bankrate's CD rate database. On a $10,000 deposit, that difference amounts to nearly $600 in interest income over five years, according to Bankrate's CD calculator.

To me, there's no reason to settle for a subpar yield. Opening a CD account doesn't take all that much work, and since FDIC-member banks all carry the same $250,000 insurance limit -- as long as you keep your deposit below that threshold -- you're protected in the event of a bank failure.

What do you think? Do you chase CD yield, or do you stick with the same bank through thick and thin?

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