With the 10 year treasury at 1.5%, CD rates are at 30 year low yields. The current 5 year CD rate in Connecticut is now around 1% which is actually a bit lower than the 3 year CD rates being offered. Bankrate.com is the best place to find all local CD rates available. Click her to go to BANKRATE
With rates this low, it is wise to look at alternatives and here I will talk about 2 of them which are Fixed annuities and Market linked CD’s.
Market linked CD’s: (Also called brokerage CD’s) are easy to understand. They are CD’s which provide a return based on the performance of a bucket of stocks. If the stocks are even or show some gain for the year, you get a stated return such as 6% (Where offers are currently). If the bucket of stocks is down for the year, 0% is credited to the account. The account can never have a negative return for the year and with current CD rates at 1% yields, the market linked CD is likely to outperform the traditional CD by a substantial margin.
Fixed annuities: Fixed annuities work just like a CD. The money goes into the account for a stated amount of time such as 5 years. During that time the account is credited with a fixed interest rate. At the end of the term, the client is able to walk away with the money without any type of penalty. The big difference now is how much more a fixed annuity is paying vs. a CD. There are multiple fixed annuities offering 2% on a 3 year fixed contract and 3% on a 5 year contract. There are 10 year contracts available at 4% for those looking for a long term rate but 10 years is probably not a good thought given the current rate conditions.
There is more money being moved into fixed annuities than at any other time in history which is no surprise given the rate advantage. Still, people put money into CD’s at .5% to 1% with their local banks. The most logical reason they continue to accept such low rates is due to a lack of understanding about fixed annuities and how they work.