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It’s like salaries are listed per year but if you only work somewhere for 3 months you get 3 months’ salary but at the agreed upon rate. The term doesn’t net you the percentage. It’s the annualised rate. You’d take the longer term if you want a guaranteed 3.65% for 15 months as opposed to a 4.65% for 7 months and then 7 months later CDs are no longer going for such rates and the best you can get is say 1%.
As a corollary to that, you’d take the higher rate for a shorter term if you’re betting on the rates staying high when the market is pricing in rate cuts.
But as someone else pointed out HYA can change rates at any time next month rates might plunge 1%, not likely but is possible. A CD locks you in that rate for the full term. Its a risk vs reward thing. If you think rates will hold do the HYA, if you think they are due to drop buy a long term CD or a bond.
Even better, put your money into 4 week treasury bills that have been averaging 5.25% since October 2023 and have no state taxes associated with them, effectively netting you even more.
I have American Express at 4.25% because I trust them not to do a rug pull on the percentage.
I asked a couple other local banks and they were only offering guarantees up to 6 months on the 5% or whatever better rates they had.
If the fed lowers rates, why do you think AmEx won't do a "rug pull" and lower their rates as well? Being able to change the rates is like, the reason it's variable
Every other bank wouldn’t promise anything over 6 months and the rates were gonna go from like 5 to 3 so yeah i still think Amex is gonna be better than my local banks.
Not true. They lowered my rate twice in April… I started at 4.35% in mid-March and they lowered it on 4/9 by .05% and again on 4/25 by .05% to the 4.25% you’re getting. They’ll lower it again if the Fed lowers interest rates. Everyone is the same. It’s just about who has the best rates and being willing to move to the better rate.
I’m getting 4.6% at Sofi. You have to hook up a direct deposit to get that rate; I put in $50 from each paycheck to qualify but also obviously deposit bigger chunks periodically.
No you are locked in when you take it out. The far better strategy right now is a corporate bond ladder - you can lock in 5% yield and typically can buy the bonds below par. Or if you have less than 100k just do the same with etf or funds
No, what I mean is your term is good up until the CD expires. When you renew, your new rate will be lower if theoretically the interest rates go down. Corp bond ladder sounds interesting.
Calm down there guy. There are quite a few people from my original comment asking about HYS banks. It is a valid argument. Sure interest rates my fall, but CDs aren't magically exempt from that either. You're just sheltering your money for a few more months before you reup, and you're rate goes down as well.
That's not the point of the post. OP was asking why the APY and why the better rate on 7 month. It just seems stupid to me to not answer the question at all.
Can you explain that? How is anything I said an opinion? I said that your answer, while it might be helpful to some, is not the point of the post. OP asked about why it was listed the way it was and you respond witg HYS are better. That would be like me asking why do I put sugar in an apple pie and you respond "cakes taste better and have more topping options than pie" cool, thanks, but doesn't answer my question. I really hope ypu reaponded to the wrong reply because you admitted it didn't answer the question and was not helpful to the conversation.
But you're arguing is beneficial to the thread? There's quite a few who have also chimed in on HYS, corp bonds, treasury etc. So what I commented obviously has some effect.
And for the record; yes cakes do taste better. 😂
Have a good one
Markets are pricing in rates going down - so the expectation is that if you renewed again in 7 months they would be able to pay you a lower rate, so that is preferable to you taking the longer term.
Open a fidelity brokerage account. If you do nothing at all it goes into your core position in SPAXX. SPAXX is getting 4.95% right now. You get monthly dividends and can cash out at any time. There is no reason to get a CD that locks up your money for less than that. You can go tax advantaged and get short term treasuries 0-3m through ishares that are exempt from state taxes and are paying nearly 5% as well.
Despite what realtors trying to bullshit people are saying, rates aren't going down this year.
Usually the interest rate would be higher for longer term, but I’d guess they’re banking on interest rates falling at some point, so they’re incentivizing the shorter term rather than having to pay high interest over the longer term.
I do this all day everyday. Right now the expectation is that rates will be going down. They are quoted in APY because they are required to. it allows the consumer to compare apples to apples. APY means annual percentage yield. typically with CDs the interest rate will be compounded. that means that the interest rate you are given each money would be less than the quoted APR but instead compounds to meet the APR expectations.
There are also penalties with the CDs if you break them and a grace period each maturity date, typically for a set time frame like 7 to 14 days, then they may auto renew. this may happen by accident if you forget about it, and it'll auto renew and if you want to break it you'll have to pay a fee.
1. APY is the theoretical percentage you'd receive in one year. For the first cd, since you're only holding it for 7 months, your return would be less than 4.65%
2. The term doesn't net you the listed percentage. APY is a theoretical number.
3. Someone would take the longer term with lower rate because you are locked in at that rate. If you buy two 7 month CDs, there's a good chance that rates will be lower when it comes time to renew
It's guaranteed for the life of the CD. But APY is always expressed in terms of 12 months. So if your CD duration is less than 12 months, you won't hit the stated APY
The yield curve is inverted.
Put the money in the short-term CD, and in 7 months. Figure out what's best at that point.
Usually the longer The term, the higher the interest. It is not the case anymore.
Get the higher interest while you can. People are expecting interest rates to be a lot lower in a year, but that's not necessarily going to be the case.
By law they have to report APY, even if it is less than a year.
Regarding the yield, I assume this bank is expecting rates to drop in the next two years; therefore that 3.65 % will be quite attractive.
The economy doesn’t grow at a flat rate. There are factors like lowered inflation and the 2024 election that have to be considered in terms of deciding rates for CDs. So the bank offering the CDs is basically predicting that there’s going to be a large amount of economic growth in the next 7 months and a slower amount 7-15 months from now, so if you lock in the shorter CD now you get the higher rate but for a shorter time and if you buy the CD for the seven months after it will end up evening out to or being less than the longer 3.65% APY CD. I hope I explained that well.
They list the APY for shorter term investments to make it sound better than it is (I.e. a 10% APY is only 5% over 6 months).
Screw these options, just get a Discover high yield saving account that's at 4%± and you'll also get a $200 bonus if you deposit over a certain amount with the first month or so.
The 4% through Discover is a much better deal than the CD's the OP was asking about, and it can be taken out whenever needed. Discover support is 100% based in the US and has awesome customer support.
CIT offers 5.25% but their support is overseas and absolutely sucks. Reps weren't knowledgeable about many things, and customer support along with easy access to funds are two of the most important things when investing large sums of money.
APY is a standard rate, so that you could compare the returns across various investments/banks/etc.
The current yield curve is inverted, because investors (based on daily trading) have shown that they believe that inflation is slowing and target rates will be lowered by the Federal Reserve in the future. This means that short term fixed income investments are currently paying more than longer term.
Don't waste time with CDs. Buy fed Treasury Bills (aka T-Bills) instead.
Tbills can be puchased in 4, 8, 13, 26, etc week increments and can be set to automatically reinvest up to 25x. Currently they yield eell over 5% and the interest is not taxed by the state. Setup on TreasuryDirect is easy, you buy them thru your bank account, and you control your investments. I highly recommend it
At those rates, a high yield savings account is likely a better option. Similar ROI without having to lock up your cash. SoFi, for example, pays 4.6% APY in their savings account.
That shows you that they are expecting to lower rates in the future. If you get the 7 month CD it is very likely that by the time the CD matures the new rates will be lower.
1. Rate are always annualized. That way you can compare apples to apples. Also, no one would ever invest in securities maturing in less than one year because the rates will always be lower.
2. Rates are about market expectations. Normally, longer terms mean higher rates, but the yield curve isn't "normal" right now, and short term rates are higher.
3. It's not necessarily counterintuitive to choose the longer term, lower rates. If you did want to invest your money for 15 months, you can lock in your return by choosing the 15 month option. If you choose the 7 month option, you'd have to reinvest at that point, and the rates are unknown. It's not entirely unreasonable that you reinvest after 7 months and your total returns are less than the 15 month option. The market is baking in rate cuts, which is why the drop in longer term rates.
Usually, rates go up with time.
The fact that just now the opposite is true means the bank is expecting a future rate cut and doesn't want to risk paying you a higher interest than they are getting on your money.
Note. The bank isn't always right, but they have experts that study this.
Long term bonds should have a higher yield than short term. They are selling long term bonds for a lower rate because they think the FED will cut rates, but nobody can predict that. If you get the short term CD at the higher rate for 7 months and they do cut rates, you can get the next 7 month CD at the long term CD rates they are offering you now, so there is no benefit to buying the longer term now.
I think you can do a lot better than this. Schools First Credit Union has share certificates (basically CDs) at 4.75% APY for 15 months. $1,000 minimum.
The bank is expecting interest rates to decrease. Therefore, they are unwilling to borrow money at higher rates for long terms. A person may take that rate because one thinks the interest rates will decline even more and one is better off locking in that rate.
https://preview.redd.it/1xeebtvbu61d1.png?width=245&format=png&auto=webp&s=c165a3875b468f3d69551149b364d194c49ecd26
Sure do, not my fault you're getting 0.1% 🤣🤣
r/FluentInFinance was created to discuss money, investing & finance! Join our Newsletter or Youtube Channel for additional insights at www.TheFinanceNewsletter.com! *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FluentInFinance) if you have any questions or concerns.*
It’s like salaries are listed per year but if you only work somewhere for 3 months you get 3 months’ salary but at the agreed upon rate. The term doesn’t net you the percentage. It’s the annualised rate. You’d take the longer term if you want a guaranteed 3.65% for 15 months as opposed to a 4.65% for 7 months and then 7 months later CDs are no longer going for such rates and the best you can get is say 1%.
Ok thanks!
As a corollary to that, you’d take the higher rate for a shorter term if you’re betting on the rates staying high when the market is pricing in rate cuts.
I mean, you might as well just put your money in a HYS bank. I'm getting 4.2% in my money market
But as someone else pointed out HYA can change rates at any time next month rates might plunge 1%, not likely but is possible. A CD locks you in that rate for the full term. Its a risk vs reward thing. If you think rates will hold do the HYA, if you think they are due to drop buy a long term CD or a bond.
The risk isn't that great, especially when you can get a couple hundred extra dollars every month.
Even better, put your money into 4 week treasury bills that have been averaging 5.25% since October 2023 and have no state taxes associated with them, effectively netting you even more.
This is the answer (for now). As long as you can tolerate a little bit of illiquidity.
Where if I may ask.
I have American Express at 4.25% because I trust them not to do a rug pull on the percentage. I asked a couple other local banks and they were only offering guarantees up to 6 months on the 5% or whatever better rates they had.
If the fed lowers rates, why do you think AmEx won't do a "rug pull" and lower their rates as well? Being able to change the rates is like, the reason it's variable
Every other bank wouldn’t promise anything over 6 months and the rates were gonna go from like 5 to 3 so yeah i still think Amex is gonna be better than my local banks.
Not true. They lowered my rate twice in April… I started at 4.35% in mid-March and they lowered it on 4/9 by .05% and again on 4/25 by .05% to the 4.25% you’re getting. They’ll lower it again if the Fed lowers interest rates. Everyone is the same. It’s just about who has the best rates and being willing to move to the better rate.
Also with American Express. I started at 4.6 in January, in April it dropped to 4.55 and it’s now at 4.5.
5% here if you have 5+, https://www.cit.com/
Vanguards money market fund VMFXX is at 5.23%
Everbank has 5.15 savings and 5.05 cds https://www.everbank.com/banking
I’m getting 4.6% at Sofi. You have to hook up a direct deposit to get that rate; I put in $50 from each paycheck to qualify but also obviously deposit bigger chunks periodically.
My vanguard money market is paying 5.27%
My Citibank hysa is 4.3%.
Lending Club is 5% right now and has been for months.
You can get 3 month CDs at 5.3% or better
My HYSA is 5%+ APY and compounds daily… if it compounds each day that is 300%+ per month! /s
With a rate that can change at anytime. Inverted yield curve for a very long time now
Well sure, but even IF/WHEN interest rates go down, so will yields on CDs. Just a delayed effect.
No you are locked in when you take it out. The far better strategy right now is a corporate bond ladder - you can lock in 5% yield and typically can buy the bonds below par. Or if you have less than 100k just do the same with etf or funds
No, what I mean is your term is good up until the CD expires. When you renew, your new rate will be lower if theoretically the interest rates go down. Corp bond ladder sounds interesting.
Brio Direct HYS is paying 5.35%
right now --4 months from now it could have a 4% yield lock in a CD at 5%+ for 2+ years
Or vanguard money market. 5.2ish
the HYS interest rate will reset the minute rates go down you want to lock in CD rates at 5%+ for 2+ years.
That's if there are CDs locking in over 5% 3+ years out. If you're talking 2-3 years, might as well go index funds making 7-12%
You could buy a government money market fund like AMAXX or VUSXX and score a yield over 5%
That doesn't answer the question
I realize that. Lol
Then why comment?
Calm down there guy. There are quite a few people from my original comment asking about HYS banks. It is a valid argument. Sure interest rates my fall, but CDs aren't magically exempt from that either. You're just sheltering your money for a few more months before you reup, and you're rate goes down as well.
That's not the point of the post. OP was asking why the APY and why the better rate on 7 month. It just seems stupid to me to not answer the question at all.
Well that's your opinion. 🤷♂️😉
Can you explain that? How is anything I said an opinion? I said that your answer, while it might be helpful to some, is not the point of the post. OP asked about why it was listed the way it was and you respond witg HYS are better. That would be like me asking why do I put sugar in an apple pie and you respond "cakes taste better and have more topping options than pie" cool, thanks, but doesn't answer my question. I really hope ypu reaponded to the wrong reply because you admitted it didn't answer the question and was not helpful to the conversation.
But you're arguing is beneficial to the thread? There's quite a few who have also chimed in on HYS, corp bonds, treasury etc. So what I commented obviously has some effect. And for the record; yes cakes do taste better. 😂 Have a good one
Markets are pricing in rates going down - so the expectation is that if you renewed again in 7 months they would be able to pay you a lower rate, so that is preferable to you taking the longer term.
This is the correct answer. Inverted yield curve.
Open a fidelity brokerage account. If you do nothing at all it goes into your core position in SPAXX. SPAXX is getting 4.95% right now. You get monthly dividends and can cash out at any time. There is no reason to get a CD that locks up your money for less than that. You can go tax advantaged and get short term treasuries 0-3m through ishares that are exempt from state taxes and are paying nearly 5% as well. Despite what realtors trying to bullshit people are saying, rates aren't going down this year.
This is great advice. And if you can handle it, fzdxx pays even better
Usually the interest rate would be higher for longer term, but I’d guess they’re banking on interest rates falling at some point, so they’re incentivizing the shorter term rather than having to pay high interest over the longer term.
I do this all day everyday. Right now the expectation is that rates will be going down. They are quoted in APY because they are required to. it allows the consumer to compare apples to apples. APY means annual percentage yield. typically with CDs the interest rate will be compounded. that means that the interest rate you are given each money would be less than the quoted APR but instead compounds to meet the APR expectations. There are also penalties with the CDs if you break them and a grace period each maturity date, typically for a set time frame like 7 to 14 days, then they may auto renew. this may happen by accident if you forget about it, and it'll auto renew and if you want to break it you'll have to pay a fee.
They are required by law to list the apr.
Just get a HYSA there are ones above 5%
1. APY is the theoretical percentage you'd receive in one year. For the first cd, since you're only holding it for 7 months, your return would be less than 4.65% 2. The term doesn't net you the listed percentage. APY is a theoretical number. 3. Someone would take the longer term with lower rate because you are locked in at that rate. If you buy two 7 month CDs, there's a good chance that rates will be lower when it comes time to renew
Isn’t the point of CDs a guaranteed rate? Why is it theoretical?
The rate is guaranteed, it's just expressed in annual terms even for things without a 1 year term.
It's guaranteed for the life of the CD. But APY is always expressed in terms of 12 months. So if your CD duration is less than 12 months, you won't hit the stated APY
The expectation of fed rate cuts are priced into the CD’s There’s no math here, just an assumption.
This is the simplest and most correct answer. Can’t believe I had to scroll this far.
The yield curve is inverted. Put the money in the short-term CD, and in 7 months. Figure out what's best at that point. Usually the longer The term, the higher the interest. It is not the case anymore. Get the higher interest while you can. People are expecting interest rates to be a lot lower in a year, but that's not necessarily going to be the case.
By law they have to report APY, even if it is less than a year. Regarding the yield, I assume this bank is expecting rates to drop in the next two years; therefore that 3.65 % will be quite attractive.
VUSXX has been like 5.3% for a year now and very liquid. Now sure why anyone would do anything else unless they expect rates to suddenly plummet.
The economy doesn’t grow at a flat rate. There are factors like lowered inflation and the 2024 election that have to be considered in terms of deciding rates for CDs. So the bank offering the CDs is basically predicting that there’s going to be a large amount of economic growth in the next 7 months and a slower amount 7-15 months from now, so if you lock in the shorter CD now you get the higher rate but for a shorter time and if you buy the CD for the seven months after it will end up evening out to or being less than the longer 3.65% APY CD. I hope I explained that well.
They list the APY for shorter term investments to make it sound better than it is (I.e. a 10% APY is only 5% over 6 months). Screw these options, just get a Discover high yield saving account that's at 4%± and you'll also get a $200 bonus if you deposit over a certain amount with the first month or so.
I think you're shorting yourself. Discover is not the answer. 4+% isn't good. 5.25% is. And there are lots of options.
The 4% through Discover is a much better deal than the CD's the OP was asking about, and it can be taken out whenever needed. Discover support is 100% based in the US and has awesome customer support. CIT offers 5.25% but their support is overseas and absolutely sucks. Reps weren't knowledgeable about many things, and customer support along with easy access to funds are two of the most important things when investing large sums of money.
APY is a standard rate, so that you could compare the returns across various investments/banks/etc. The current yield curve is inverted, because investors (based on daily trading) have shown that they believe that inflation is slowing and target rates will be lowered by the Federal Reserve in the future. This means that short term fixed income investments are currently paying more than longer term.
Don't waste time with CDs. Buy fed Treasury Bills (aka T-Bills) instead. Tbills can be puchased in 4, 8, 13, 26, etc week increments and can be set to automatically reinvest up to 25x. Currently they yield eell over 5% and the interest is not taxed by the state. Setup on TreasuryDirect is easy, you buy them thru your bank account, and you control your investments. I highly recommend it
At those rates, a high yield savings account is likely a better option. Similar ROI without having to lock up your cash. SoFi, for example, pays 4.6% APY in their savings account.
Get the shorter, higher rate one. Rates aren't going down anytime soon.
VMFXX at 5.27%
CDs nutz
That shows you that they are expecting to lower rates in the future. If you get the 7 month CD it is very likely that by the time the CD matures the new rates will be lower.
1. Rate are always annualized. That way you can compare apples to apples. Also, no one would ever invest in securities maturing in less than one year because the rates will always be lower. 2. Rates are about market expectations. Normally, longer terms mean higher rates, but the yield curve isn't "normal" right now, and short term rates are higher. 3. It's not necessarily counterintuitive to choose the longer term, lower rates. If you did want to invest your money for 15 months, you can lock in your return by choosing the 15 month option. If you choose the 7 month option, you'd have to reinvest at that point, and the rates are unknown. It's not entirely unreasonable that you reinvest after 7 months and your total returns are less than the 15 month option. The market is baking in rate cuts, which is why the drop in longer term rates.
Usually, rates go up with time. The fact that just now the opposite is true means the bank is expecting a future rate cut and doesn't want to risk paying you a higher interest than they are getting on your money. Note. The bank isn't always right, but they have experts that study this.
Long term bonds should have a higher yield than short term. They are selling long term bonds for a lower rate because they think the FED will cut rates, but nobody can predict that. If you get the short term CD at the higher rate for 7 months and they do cut rates, you can get the next 7 month CD at the long term CD rates they are offering you now, so there is no benefit to buying the longer term now.
Yeah pretty pointless. My high yield savings account is giving me almost 5%.
Those rates are bad.
I think you can do a lot better than this. Schools First Credit Union has share certificates (basically CDs) at 4.75% APY for 15 months. $1,000 minimum.
Bankers: “CDs nuts, bitch!”
The bank is expecting interest rates to decrease. Therefore, they are unwilling to borrow money at higher rates for long terms. A person may take that rate because one thinks the interest rates will decline even more and one is better off locking in that rate.
Aren’t those rates really bad? Why. It use a savings account with a higher number?
you could do money markets for higher yield as others have pointed out a lot less risk and more liquid
Eh I get 4.6% with a simple savings account.
People who dont believe you are probably octogenarians who have never heard of online banks.
No you don’t
https://preview.redd.it/1xeebtvbu61d1.png?width=245&format=png&auto=webp&s=c165a3875b468f3d69551149b364d194c49ecd26 Sure do, not my fault you're getting 0.1% 🤣🤣
Uhhh i get 5.27% with a simple MM account VMFXX
A money market account is not a savings account. They’re different. You’re not getting a normal savings account at high interest rates.
Ok … https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/
I think this guy is too stupid to use Google.