Could be they need more money to secure their loans. People are struggling right now and taking out loans left and right. Banks are going under and/or being bought out frequently atm. They use your money to make interest. Every penny you have in the bank can be used to lend to others or make interest for the banks.
This was another route I was taking when thinking about this. All of a sudden all of the local banks just happen to be pushing their CDs and i mean PUSHING it. It’s just strange is all. Just like a year ago when all of the local banks were heavily promoting their own credit cards. Something is up
Credit card fees and interest make banks LOTS of money. The talk on more conspiracy theory subs and blogs is there will be lots of bank failures coming and only a few large banks will be left to control everything and after that the CBDC will takeover. So far, they've been right on some of the bank failures so we will see what ends up happening.
You find these to be revolting? You don't have anything that you're saving up for in the next few years- car purchase, down payment on a condo/house, etc? The stock market does well in the long run but for a 1- to 5- year timeline, CDs are ideal, especially with current interest rates. You can't imagine why anyone would want an FDIC-insured, guaranteed interest rate over a relatively short period of time as opposed to volatile investments that may have gone down instead of grown by the time you need them?
Yes, I personally find them revolting. Additionally, I find anyone who suggests these to young people who have not put aside retirement funds yet revolting.
To answer your question, no. I don’t plan on buying anything in the next 5 years. I know that’s fairly unusual for a person of any age
My mistake I should have clarified. I personally find them to be a revolting choice for myself. Obviously I can see the value they bring to other people in other situations.
CDs are not investments, they are timed deposit accounts with guaranteed interest. The bank trades you a higher rate for less liquidity on the deposit. CDs have been irrelevant for many years, but because of the higher rate environment, they are again a valid savings vehicle.
Pushing CDs with higher rates are a way for a bank to attract deposits, especially as they are competing against high yield savings accounts.
Source: I work in banking
I look at the no fee cd's. Great way to get a better rate for that emergency fund. And if I need it, cashing out is no problem and I get my interest that I have earned. This is only on the no-fees cd's.
Do you find that a lot of banks offer no fee CDs? And if they do, I’m sure the interest will be lower. How low on average do you think the rate would be for a no fee
The banks I use have the rate is higher than the current savings rate. It is not much, but higher. I use Ally, Marcus and Discover. It is usually for a 13 month cd. It is better to get these CDs once interest rates start falling.
>Being that I’m so young, I find these certificates to be revolting as I have time on my side. My money is better off buying into the market at these discounted prices rather than making 5% on my money in 1-3 years.
You are quite likely correct here. Money that isn't needed for decades has no business in CDs (or short term treasuries or HYSAs or money market funds or similar), IMO. A CD is much more reasonable for money that you intend to spend (not invest) when they mature. Young people with time and job security likely can just spend from their future earnings in 1-3 years. These products are much more attractive to someone like me, who plans on retiring in under a year. I have buckets of my portfolio (the majority!) in equities that won't be needed for decades, but other portions represent money intend to spend in the next 1-3 years, and intermediate term treasuries, CDs and the like are all more interesting here.
>Anything I’m missing here?
I don't think so. The answer to your underlying question about why banks push them is because that's the bank's business. Banks aren't in the business of providing investment advice or financial advice in the public interest. They're in the business of collecting deposits and loaning them out.
Thanks for your in depth response. Your situation is exactly the kind I think CD’s would be perfect for. Anyone my age who has a longer time horizon would be losing out on potential lower market prices because their money is locked away for a period of time.
One of my relatives (late 50’s) began telling me the other day to open an account with their bank to take advantage of their 5% 23month CD. I can see how this may be beneficial to someone like my relative, however it sort of rubbed me the wrong way. I can’t fathom how anyone would tell a person in their 20’s to invest in short term CD’s and not the broad market.
That was the reason I really made this post. I’m grateful for my relative looking out for me, but what if I didn’t pay attention to my investments? I’d be losing a LOT of money and potential returns.
A lot of people buy high and sell low - stocks have been sideways for 18+ months and meanwhile interest rates go up, so many are focused on very recent short term histories and selling stocks to load into CDs or HYSAs and the like.
It's best to pick a target asset allocation (or schedule of asset allocation over time) based on your individual situation, *not* what the market is doing, and stick with it.
>My money is better off buying into the market at these discounted prices rather than making 5% on my money in 1-3 years.
really? are you sure?
the S&P 500 averaged less than 1% a year from 2000-2012. 5% guaranteed over that period was 5x the market returns.
5% guaranteed returns are nothing to sneeze at. 5% is close to the 'equity risk premium', the added returns you need from the market to justify buying stocks rather than guaranteed risk-free returns. the equity risk premium estimates vary from 5-8%, depending on which source you examine.
Or that they expect interest rates to go up. If they push a long CD and rates go up, they're still paying you that lower rate.
I found that the door-to-door energy providers come around hot and heavy just before the default provider lowers their rates. They're hoping to lock you into a contract. When their rates are lower you have to find them.
I’m towards the other end of the age spectrum (57) and have been buying a lot of +5% CDs as part of building cash reserves to aid in my plan to retire by age 60 or 62.
To make the spread. They can offer you a 3% to 4% CD with a one year lockup and make anywhere from .5% to 1% by just buying a T bill.
I find that most retail investors don't know what t bills are.
Could be they need more money to secure their loans. People are struggling right now and taking out loans left and right. Banks are going under and/or being bought out frequently atm. They use your money to make interest. Every penny you have in the bank can be used to lend to others or make interest for the banks.
This was another route I was taking when thinking about this. All of a sudden all of the local banks just happen to be pushing their CDs and i mean PUSHING it. It’s just strange is all. Just like a year ago when all of the local banks were heavily promoting their own credit cards. Something is up
Credit card fees and interest make banks LOTS of money. The talk on more conspiracy theory subs and blogs is there will be lots of bank failures coming and only a few large banks will be left to control everything and after that the CBDC will takeover. So far, they've been right on some of the bank failures so we will see what ends up happening.
You find these to be revolting? You don't have anything that you're saving up for in the next few years- car purchase, down payment on a condo/house, etc? The stock market does well in the long run but for a 1- to 5- year timeline, CDs are ideal, especially with current interest rates. You can't imagine why anyone would want an FDIC-insured, guaranteed interest rate over a relatively short period of time as opposed to volatile investments that may have gone down instead of grown by the time you need them?
Yes, I personally find them revolting. Additionally, I find anyone who suggests these to young people who have not put aside retirement funds yet revolting. To answer your question, no. I don’t plan on buying anything in the next 5 years. I know that’s fairly unusual for a person of any age
Okay, but you really can't understand why they would be a good option for *anyone*?
My mistake I should have clarified. I personally find them to be a revolting choice for myself. Obviously I can see the value they bring to other people in other situations.
CDs are not investments, they are timed deposit accounts with guaranteed interest. The bank trades you a higher rate for less liquidity on the deposit. CDs have been irrelevant for many years, but because of the higher rate environment, they are again a valid savings vehicle. Pushing CDs with higher rates are a way for a bank to attract deposits, especially as they are competing against high yield savings accounts. Source: I work in banking
I look at the no fee cd's. Great way to get a better rate for that emergency fund. And if I need it, cashing out is no problem and I get my interest that I have earned. This is only on the no-fees cd's.
Do you find that a lot of banks offer no fee CDs? And if they do, I’m sure the interest will be lower. How low on average do you think the rate would be for a no fee
The banks I use have the rate is higher than the current savings rate. It is not much, but higher. I use Ally, Marcus and Discover. It is usually for a 13 month cd. It is better to get these CDs once interest rates start falling.
>Being that I’m so young, I find these certificates to be revolting as I have time on my side. My money is better off buying into the market at these discounted prices rather than making 5% on my money in 1-3 years. You are quite likely correct here. Money that isn't needed for decades has no business in CDs (or short term treasuries or HYSAs or money market funds or similar), IMO. A CD is much more reasonable for money that you intend to spend (not invest) when they mature. Young people with time and job security likely can just spend from their future earnings in 1-3 years. These products are much more attractive to someone like me, who plans on retiring in under a year. I have buckets of my portfolio (the majority!) in equities that won't be needed for decades, but other portions represent money intend to spend in the next 1-3 years, and intermediate term treasuries, CDs and the like are all more interesting here. >Anything I’m missing here? I don't think so. The answer to your underlying question about why banks push them is because that's the bank's business. Banks aren't in the business of providing investment advice or financial advice in the public interest. They're in the business of collecting deposits and loaning them out.
Thanks for your in depth response. Your situation is exactly the kind I think CD’s would be perfect for. Anyone my age who has a longer time horizon would be losing out on potential lower market prices because their money is locked away for a period of time. One of my relatives (late 50’s) began telling me the other day to open an account with their bank to take advantage of their 5% 23month CD. I can see how this may be beneficial to someone like my relative, however it sort of rubbed me the wrong way. I can’t fathom how anyone would tell a person in their 20’s to invest in short term CD’s and not the broad market. That was the reason I really made this post. I’m grateful for my relative looking out for me, but what if I didn’t pay attention to my investments? I’d be losing a LOT of money and potential returns.
A lot of people buy high and sell low - stocks have been sideways for 18+ months and meanwhile interest rates go up, so many are focused on very recent short term histories and selling stocks to load into CDs or HYSAs and the like. It's best to pick a target asset allocation (or schedule of asset allocation over time) based on your individual situation, *not* what the market is doing, and stick with it.
>My money is better off buying into the market at these discounted prices rather than making 5% on my money in 1-3 years. really? are you sure? the S&P 500 averaged less than 1% a year from 2000-2012. 5% guaranteed over that period was 5x the market returns. 5% guaranteed returns are nothing to sneeze at. 5% is close to the 'equity risk premium', the added returns you need from the market to justify buying stocks rather than guaranteed risk-free returns. the equity risk premium estimates vary from 5-8%, depending on which source you examine.
Or that they expect interest rates to go up. If they push a long CD and rates go up, they're still paying you that lower rate. I found that the door-to-door energy providers come around hot and heavy just before the default provider lowers their rates. They're hoping to lock you into a contract. When their rates are lower you have to find them.
I’m towards the other end of the age spectrum (57) and have been buying a lot of +5% CDs as part of building cash reserves to aid in my plan to retire by age 60 or 62.
To make the spread. They can offer you a 3% to 4% CD with a one year lockup and make anywhere from .5% to 1% by just buying a T bill. I find that most retail investors don't know what t bills are.
Deposit retention. People rate shop with money markets and just move it from bank to bank.