As interest rates have moved up on longer-term CDs, many have found themselves in a quandary over what to do about longer-term CDs that they may have purchased over the last couple of years and that are now yielding less than the going rate.

In fact, I myself find myself in such a position, having purchased a 5-year CD from a major online back 2 years ago at 2.25%. With BestCashCow now showing 3-year CD rates at 2.60% and with the ability to get out of the CD with a 6-month early withdrawal penalty, I can already cover my losses from the penalty by rolling into a higher yielding CD.

With rates points to rise still further, this strategy locks into one early withdrawal penalty and runs a high risk of a second one. It accomplishes little other than a psychological benefit of allowing me to feel like I am still getting the best CD rate.

Since rates may rise further between now and the end of the year, and still further into next year, I have chosen to adopt a separate strategy. My strategy involves resolving, as I have, that I will ultimately need or want to terminate the CD that is earning 2.25% before the end of its term three years from now. That will cost me 6 months of interest (or 1.25% the initial CD price) whenever I pull the trigger. But, rather than do this now and risk getting another CD which may quickly wind up paying below the best rates, I have decided to treat this outstanding CD as if it were cash or a short term CD. Since 2.25% is still better than what I can get in a savings or a one-year CD, I will hold the CD for now.

When savings and short term CD rates have moved meaningfully above 2.25%, I will reconsider my position (unless there is only a very short period left of the CD at that time).

This situation underscores the importance of looking for CDs with reasonable early-withdrawal penalties. We consider 3 months of interest to be a reasonable penalty on a 1-year CD and 6 months of interest to be a reasonable penalty on a CD longer than 1 year. Also, as we noted in this article, the bank or credit union’s terms may grant it discretion whether to honor your early withdrawal request. You can lessen the risk of an early withdrawal being denied by only opening CDs with larger, recognized online banks.

I am only in my forties, but I have been told by my seniors of an era of largely stable interest rates when 6-month CDs offered depositors the ability to earn a premium over savings or money market rates, without the burden of locking up their money for as long as a year.

Of course, it makes sense in any environment where interest rates are stable or increasing that depositors would be rewarded, albeit marginally, for locking up their money for 182 or 183 days. However, in the post-2008 period, of course, depositors have not seen 6-month CDs that offer a premium over savings rates. Even over the last several years when savings and money market rates have been slowing moving up as the Federal Reserve raised the Fed Funds rate from zero to 1.25%, the best 6-month CD rates have been largely below the best savings rates.

With consensus estimates that the Federal Reserve is poised to raise interest rates 3 or 4 times in 2018, last week we finally saw the emergence of 6-month rates that are better than the best savings rates.

As of this writing, the best online savings rate is 1.80% and the best 6-month CD is 1.95% APY. (Local rates where you live may be higher. Check local bank savings rates here, and local credit union savings rates here. See local bank 6-month CD rates here and local credit union 6-month CD rates here).

We don’t believe that a 15 basis point premium over savings is worth chasing. Over 6 months, it amounts to 7.5 basis points which after tax is about 4 basis points. In other words, you are looking at a gain of $100 on $250,000.

Nonetheless, for many people who would otherwise consider short-term CDs, but have shied away from locking up their money for periods of 1 year or longer, the return of the 6-month CD is an interesting development.

We’ve written before, multiple times, about EverBank’s currency CD program. We addressed these products most recently here, having first addressed them here.

The EverBank 3-Year Petrol Currency Marketsafe CD - like the earlier EverBank products on which it is based - is not a CDs at all. A CD is a time deposit guaranteed to compensate the depositor with a certain rate of return as consideration for keeping their money with the issuing bank for a certain period of time. EverBank's so-called CD is an investment product designed to exploit unsuspecting people without any currency knowledge or wherewithal and to get them into a product that is more likely than not to deliver no return whatsoever over a long period of time.

When EverBank today announced this 3-Year Petrol Currency Marketsafe CD today, they produce a page with all sorts of wishy-washy rationale on why customers should be desperate to invest in a vague product involving the Canadian dollar, the Mexican peso, the Russian ruble and the Brazilian real as a way to take advantage of higher oil prices. Beyond the wishy-washy rationale, the page and the video on the page represent a prima facie violation of the Securities and Exchange Act of 1933.

So, let’s make this simple:

• If you believe oil prices are going to go up, you can buy Exxon, Chevron, or another US oil company that produces a dividend.
• If you want to take on more risk associated with Canada, Mexico or Brazil, you can buy Canadian oil trusts, Pemex or Petrobras.
• If you must own Canadian dollars, Mexican pesos or Brazilian real, you can open an interest bearing foreign currency account with Citibank.
• If you must own Russian rubles, you should get your head examined.
• If you want your money to be tied up with EverBank for the next three years, you should check BestCashCow’s 3-year CD rates and see how EverBank compares with others.

Under no circumstances should you invest in EverBank's 3-Year Petrol Currency Marketsafe CD.