Current CD Rates are More Attractive as Treasury Yields Fall
Geopolitical tensions around the world have you nervous about staying invested in equities? Well they should because investors throughout the world are reducing risk in equities and fleeing to the safety of Treasuries. As investors buy Treasuries, price move higher and yields move lower.
If you're reducing your risk in equities you should give certificates of deposit another look. None of your principal is at risk when you invest in CDs as long as you stay under the insured FDIC amount of $250,000. Investing in bonds does put your principal at risk if you decide to sell before maturity.
Certificates of deposit are also paying better rates right now over U.S. bond rates. For example, the best 1 year CD rate on the rate list below is currently at 1.09 percent with an APY of 1.10 percent. The current 1 year bond rate is much lower paying only 0.10 percent, less than 1/10 the CD rate.
Below you compare the highest CD rates available with current U.S. Treasury yields.
As you can see, the best CD rates available are much higher than their equivalent bond yields. The future looks bright for CD rates as the Federal Reserve is set to increase the fed funds rate sometime in 2015, this will send bank CD rates higher.
Bond yields are also expected to increase in 2015 but remember, bond prices and yields are inversely related. As yields move higher, prices will move lower. Selling those bonds before they mature will cause you to lose some of your principal. Cashing a CD before maturity will only cause you to lose some, or all, of the interest earned, but no principal.
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