This bank just raised its 1-year CD rate to more than 5%.
Traders expect the Federal Reserve to start cutting interest rates as early as September, driving down cash yields, but some places are still offering yields above 5% to those who want to park their money. To that end, Goldman Sachs’ Marcus recently raised the annual percentage yield on its one-year CD to 5.15%, a 15 basis point increase over the week, BTIG found. One basis point equals one-hundredth of a percentage point. Marcus’s yield increase puts it in an exclusive group of financial institutions that continue to offer rates in the 5% range on deposits. Citizens Access and Capital One Financial both offer 1-year CDs with a 5% yield, while Sallie Mae offers an APY of 5.15%. Bread Financial tops the list, with an APY of 5.25% for its 1-year CD. While the yields are steady, they likely won’t last. The Fed’s rate-hiking cycle, which begins in March 2022, has had the pleasant side effect of boosting yields on money market funds, CDs, high-yield savings accounts, and other cash assets. The party will start to wind down as rates fall—and investors who hide in these short-term instruments will see their yields plummet. “Overall, we still expect online bank deposit rates to decline,” Vincent Caintic, an analyst at BTIG, said in a Friday report. “Almost all of the banks in our coverage group expect their balance sheets to be flat or decline.” Indeed, LendingClub recently cut its 1-year CD APY to 4.2%, reflecting a 95 basis point cut, Caintic found. “LendingClub’s move was a surprise, as they’ve traditionally been at the bottom of the deposit interest rate table but have now positioned themselves at the bottom,” he said. CDs and money market funds can be safe places for investors to park some short-term cash, especially since CDs allow investors to enjoy higher yields now for a period of time. But there are trade-offs for depositors. For example, investors may lose some interest if they “break” their CDs before maturity, making these funds less liquid than money market funds. There’s also the possibility that a bank could renew a mature CD at a lower interest rate than it was originally offered. Over the long term, investors who are heavily invested in cash risk missing out on attractive returns from stocks or not being able to lock in higher yields when using longer-term fixed-income assets.
