Flexible interest rate CDs

With the passage of time an increasing number of banks are now providing certificates of deposits which offer a flexible rate of interest. The interest rate is designed to increase with the increase in the customer’s account funds. The drawback of this offer is that it comes at a high rate and has complicated terms of use. Savers are also at risk of losing out on increased yields, as the interest rates rise.

CDs were normally associated with tough terms. These certificates accounted for a fixed yield from the moment the customer deposited his or her cash till the end of the savings period. Those savers who withdrew funds early were penalized. This option of saving was availed by individuals as it offered a higher return than other bank accounts.

This however is no longer true as the yields of CD are at an all time low. There is little incentive for savers to invest in it now. As a result more and more people are resorting to placing their cash in either savings accounts or checking accounts, as these options provide them with easy access to the funds.

Furthermore the yields of CD are already very low and they show no signs of rising. Their return is no longer higher than that of the regular savings account. In accordance with the study of Market rates insight, which is banking research and Analysis Company located in San Anselmo, the average annual return of a 5 year CD is no higher than 0.78%. This return is only 0.69 percentage points higher than that of the savings accounts. In 2007, this rate had been 3.62 percentage points higher, after which the rates began to decline.

In order to make up for this decline and to attract more deposits into CDs, many of the credit unions and banks are introducing new and unique features. Some of them are mentioned as follows:
Consider the initiative taken by EverBank Financial, which is a national bank based in Jacksonville, Fla. It introduced a CD with a maturity of five years, which was linked to a treasury of 10 years. This CD was introduced in May 2014, and it required all interested customers to deposit a minimum of $1500 in the CD maximum by mid June. The main feature of this CD is that the depositors will earn an interest if the 20 year return on treasury is higher at the time when CD matures in June 2019. Savers should treat this CD as a speculative bet which will earn them a good return over the next 5 years.

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