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Three Keys to Increasing Your CD Interest Rates

With many 1-year rates slipping below 1.50% and shorter-term CDs and saving accounts dipping to below 1.00%, it can be very difficult to obtain a decent rate of return. Here are three key strategies to increasing your yields.

Our Federal Government has been on an outright assault against savers. It is time to take some yields back. The first method involves targeting unhealthy banks. Unhealthy banks often have to offer higher rates than their healthy peers do in order to sweeten the pot. So look for banks with an Equity/Asset ratio of less than 4%. They are probably going to be closed at some point in the near future (and they probably know it). Put your funds into their longer term CDs (2Y and up) and you should get yields above 2.00%. When the bank fails, you have the option to take your money back with no penalty. Wash, Rinse, & Repeat until rates go up. The downside risk here is the bank may pull out a miracle and end up recovering. Or they may be closed soon after you opened the CD. So your time would have been wasted.

The second option I think gives you the best hedge without a huge downside. This involved investing in longer-term CDs (5Y and greater) with low penalties to close (3-months to 9-months). For instance, there have been some 3.50% rates with 3-month penalties. If you do the math, and were to close after 1-year, your effective net would be 2.63%; 2-years, your effective net would be 3.06%, and after 3-years it would be 3.21%. Those rates are well above what those terms are offering these days. So as long as rates are low you are earning 3.50%. When rates start going back up, you can close without losing your shirt.

The third option is to invest in step-up CDs or bonds. Both have a set period where the rate will adjust upwards. I haven't seen too many step-up CDs at this point, but I do see quite a few step-up bonds. Step-up bonds provide a hedge, as the bond rates will rise during the term. They also hold their value better than a fixed bond or callable bond.

I hope these ideas are helpful and allow you to squeeze some interest out of our current proverbial turnip. These are just ideas and in no way are a recommendation for any one approach. Everyone's circumstances are different. Of course, I would love to help.

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