Certificates of deposit are paying higher rates heading into September. This counts as financial news now. Someone wrote an entire article about where to lock your money away so a bank can use it while you wait for permission to access it again.
The annual percentage yields look attractive. That's the actual phrase. Attractive. Like you're supposed to get aroused by 4.5% while inflation eats your face off and the bank turns around and lends your deposit at three times that rate to someone buying a jet ski.
Here's what's happening. You give the bank ten thousand dollars. They say thank you, we'll give this back to you in twelve months with an extra four hundred dollars attached. You feel smart. You locked in a rate. You beat the system.
Except you didn't beat anything. You just agreed to let a financial institution borrow your capital at below-market rates while you signed a contract promising not to ask for it back. They're paying you less than they'd pay each other in the overnight lending market. But the rate looks big compared to your savings account, so you think you won.
The real move here is understanding that any financial product being heavily promoted to retail investors in a headline is by definition already a bad deal. If CD rates were actually attractive, banks would be quietly offering them to their wealth management clients and telling everyone else the window closed.
Instead they're advertising them. Which means they need your deposits more than you need their interest. But you'll read the article anyway, compare rates across seven banks, and convince yourself you're doing technical analysis on a glorified time-locked savings account.
Fall begins next month, and apparently so does your tour of duty as an unpaid bank lender.
Photo by Leigh Cooper on Unsplash
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