As interest rates rise, financial institutions compete for customers with certificates of deposit.
Browsing for attractive CD rates can be a bit like scrolling for attractive partners on Tinder. There are new, exciting offers every day, and they seem tempting and worthy of your time. But the same principle holds true for both: tread carefully, as the attractive rates/partners may not be what they appear to be. Take a closer look before you commit — and, above all, don’t believe the hype.
These kinds of CD “specials” can raise hope among consumers who are looking for risk-free, inflation-beating alternatives to an unpredictable stock market and uncertain economic outlook. They may believe there will be a wave of CDs offering such high APYs. Are big banks and credit unions that desperate for our cash? No. Hence, the low caps on deposits, and the long list of sign-up restrictions.
So much for the 7% CD. “We don’t count promotional rates such as those,” said Ted Rossman, a senior industry analyst at Bankrate.com. He says smaller institutions are more likely to have doorbuster CD promotions as larger banks have all the deposits they need, and compete in other ways with extensive branch networks, national television commercials, and stadium naming rights, etc.
Banks know that the 12-month CD is a sweet spot for investors right now, said Ryan Greiser, a financial adviser in Doylestown, Pa.. As such, he said these rare 7% CD offers are supposed to grab your attention, but instead will leave most people with a significant amount of money to invest disappointed. “Such elevated rates are designed to generate visibility and buzz within the financial sector,” he said.
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