: The 7% CD? Don’t believe the hype

by | Aug 21, 2023 | Stock Market

Think twice before you fall in love with a CD. 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.

Certificates of deposit are investment vehicles where people can park their cash for a set amount of time with a guaranteed annual percentage yield or APY. Banks can borrow from the Federal Reserve, but retail deposits are often regarded as a more stable source. As interest rates rise, financial institutions are now offering CD rates hovering at 5% and above, double the top rate seen 12 months ago. Rates are competitive as large banks and, particularly, local banks and credit unions jockey for business, but experts say investors should not get too excited about CDs offering a 7% APY. They are few and far between, have too many restrictions, and you may get ghosted after they suddenly expire. In other words, they are promotional rates designed to create buzz for an institution — and headlines. These kinds of CD “specials” can raise hope among consumers who are looking for risk-free, inflation-beating alternatives …

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