Digital Credit Union is currently offering an 8-month CD that pays 1.50% APY. That's higher than every 1 year, 2 year, and and almost all three year CDs listed. The CD has a minimum balance of $1,000.

The CD can be opened in a branch or online and is open to all members of DCU anywhere in the United States.

DCU is the largest credit union in Massachusetts with over $3 billion in assets. It is headquartered in Marlborough, MA, about 30 minutes outside of Boston and has 21 branches in the greater Boston area.

One of the ways that credit unions differ from banks, is that they have restriced membership. You must meet the membership criteria before you can join and do business with the credit union. DCU's membership criteria is very open and almost anyone can qualify. Like most credit unions, DCU provides membership if a close family member already belongs or if you work or have retired from a certain employer. They also provide membership if you belong to a long list of organizations. For example a $10 membership to the American Association of People with Disabilities qualifies you to join DCU. It's a win-win. You can take advantage of DCU's competitive CD rates and help a worthy charity at the same time. Full eligibility information can be found here.

Healthwise, Digital Federal Credit Union has a Texas Ratio of 10.69% versus the national credit union average of 7.82%. One hundred percent is considered the theshold for severe bank or credit union distress.

If you don't live near a DCU branch and don't want to open an account online, check out the best CD rates from banks and credit unions in your local area.

Certificates of Deposit (CDs) have long been valued as low risk investments that provided sufficient return to justify having funds unavailable for potentially lengthy periods of time. Given the current low interest rate environment, however, is this still the case? Chasing yield can have its benefits, but it can be a time consuming process and one fraught with potential pitfalls, so it’s best to educate yourself on the options prior to pursuing such an investment course. Fully understanding what a CD is, what varieties are available and what strategies can be employed to maximize your return are steps that must be taken to become a well informed investor.

Consumers searching for low risk investments often turn to CDs, a time-based deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account. Like traditional bank accounts, they are insured by the FDIC up to $250,000 per bank per account category. Investing in CDs involves opening an account into which is deposited a fixed sum of money for a fixed period of time. In exchange the bank pays interest, typically at regular intervals until the CD matures, at which point the original investment, as well as any remaining accrued interest, is paid out. If the investor chooses to redeem the CD prior to its maturity date, there will often be an early withdrawal penalty applied. Ensuring that access to the invested money won’t be necessary, therefore, is a key requirement prior to opening a CD account.

Historically there has been only a single type of CD available to consumers; one that pays a fixed rate until maturity. In recent years this type of CD, commonly referred to as a traditional CD, has been augmented by a variety of CD types with an array of features available. Some have smaller withdrawal fees, others special redemption features if the owner dies, but the most common non-traditional feature involves getting paid a variable interest rate. These rates are often based on a pre-set schedule or tied to a specific index like the S&P 500.

The most common method for buying a CD is to open an account with an FDIC insured bank. There are other options, however, including going through brokerage firms or agents. This latter approach is most frequently employed by consumers looking to place their funds in a co-mingled account representing the investments of multiple consumers, as opposed to the more traditional individually owned CD. There are risks inherent in using an agent or brokerage firm not present when opening an individual account through a bank or thrift. FDIC coverage may not be applicable if an incompetent or dishonest broker or agent does not properly establish or maintain the CD account on your behalf. Not all institutions that sell such CDs are even eligible for FDIC coverage, so ensuring that they are represents a crucial part of investment due diligence. The account must be designated as a “deposit” in order to be covered by the FDIC; not all are, especially when purchased through an agent or broker. CDs have no contractual contingencies as the bank is unconditionally obligated to pay the full principal amount upon maturity; if there are any contractual contingencies present than the account cannot be designated a “deposit” and will not be eligible for FDIC deposit insurance.

Once educated on the product, an investor must decide on how best to employ that product within an investment strategy. The traditional method of squeezing maximum yield from CDs is an approach known as laddering. This involves opening numerous CD accounts that will mature at various times in order to generate a regular cash flow as CDs mature; benefits of this approach include the maintaining of high levels of liquidity that can be maneuvered to take advantage of rate movements. Due to years of record low interest rates, this method is not as viable as it has been in the past. Conservative investors or those who are interested in having a place to park emergency funds will find that this strategy remains useful as it keeps their money safe via the FDIC coverage and the funds are easily accessible. Poor yields, however, make this a difficult way of generating return. Core inflation is generally around 3% a year and with the average twelve month CD currently only paying 0.5% in interest, these investments don’t come close to keeping pace with the increasing cost of living.

Generally, investing in CDs with longer maturities has been more profitable as they have typically paid out at higher interest rates; now with even long term interest rates at historical lows, this strategy is no longer feasible. A better approach is to invest in shorter term CDs, thus maintaining liquidity which allows the consumer to take advantage of reinvestment opportunities once rates eventually rise again. This involves, however, a great deal of time and is likely only worthwhile for those investors with sufficient funds to justify the effort.

With laddering no longer as profitable as it has been in the past, more creative ways are needed to make money when investing in CDs. One way is to take advantage of promotional or bonus rates being offered by institutions looking to entice new customers into purchasing their products. These types of rates are most commonly offered by credit unions or smaller community banks and usually apply only to “new money”, that is money coming from elsewhere as opposed to rolling over an existing CD at the same bank into a CD that offers the superior rate. These rates are usually introductory only, and therefore time limited, thus often leading to the necessity of having to move the money upon the rates expiration. If you have sufficient time to find and take advantage of these rates and sufficient funds to generate requisite return, this can be a profitable strategy, relatively speaking. According to NerdWallet, from September 2011 to September 2012, bonus rates added an average of 0.68% over non-bonus rates. With this taken into account, shorter term CDs are now actually out-earning longer maturity CDs, which has rarely been the case in the past. There are caveats: in addition to having to find the rates and then most likely move the money in a fairly short period of time, the credit unions that most frequently proffer such opportunities often have membership restrictions such as having to work for a given employer or having to live within a certain geographic area.

Investing in CDs with the expectations of healthy yields in the current environment is simply unrealistic. However, an investor that can remain nimble by maintaining a high level of liquidity who is also willing to put in the time and effort needed to chase decent yield may find this pursuit sufficiently rewarding, particularly if they also value the security such investments offer.

Savings and CD rate averages continue to decline last week, with the one year CD average falling from .425% to .423% APY. Online savings rates from the banks offering the top 30 nationally available rates remained steady at .428% APY.

Election Impact on Savers

BestCashCow conducted a survey and received over 600 responses on various savings related questions. Regardless of who wins the election, 76% of savers say it won't have a significant impact on how they manage their money. That number drops to 60% for those over 65. Older savers may be more anxious about the election since any changes to Social Security and Medicare will have an immediate impact on their finances.

In an article entitled Low Rates Lure Yield Seekers Onto Thin Ice, economist Gary Shilling discusses the move from safe FDIC assets into riskier securities in the quest for yield. He writes in the first paragraph:

"Some investors are pursuing the safety of federally insured deposits. Others are dissatisfied with low nominal and negative real returns and are moving further out on the risk spectrum in their zeal for yield, regardless of whether they understand the additional risk they are incurring."

Our survey results shed some light on this. Despite the record low interest rates brought upon by the Great Recession and championed by the Fed, most savers appear to be keeping their money safe in the bank. Eighty-one percent of survey respondents said that record low interest rates have not pushed them to withdraw their money from the bank. In addition, a majority (53%) of respondents said that their savings and investing habits have not changed over the past four years despite scars of the financial collapse, the great recession, the increase in the Federal debt, and the persistently high unemployment rate. In fact, 74% of the 65+ respondents say they haven't made any significant changes to their savings and investment habits in the last four years. Of course, that means that 47% have changed their savings and investing habits and it's possible some have moved into riskier assets. But the record level of deposits in banks and our survey data suggests that most savers are staying put.

View more complete survey results.

Savings Options

Should a saver open a savings account or a CD? A shorter-term CD or a longer one? The chart below shows the comparison between the yield of a 5-year CD and a 1-year CD. Notice that this difference has shrunk considerably over the past year as the yield on 5-year CDs has dropped by more than the yield on a 12-month CD. This drop continued last week.

Not much has changed with the variouis product spreads. While the spread started the year at 1% or 100 basis points, it is now .790, down 3 one thousands of a point last week. As a comparison, in 2008, this spread stood at .43% while in 2010 it went as high as 1.56%. So right now, it's somewhere in the middle. Why does this matter. Because back in 2010 banks were paying a saver a lot more to invest in a 5 year CD versus a 1 year. Today, banks are giving about half the premium they did a few years ago to lock up your money for 5 years. In 2012, I advised savers to consider investing in 5-year CDs because of this premium, becasue economy looked stuck for quite some time, and because inflation did not appear to be a problem. Now, with the premium down, and the economy growing (albeit not that fast) it's a bit of a harder case to make. Consumers might want to consider laddering their CD portfolio in this rate environment.

What about the comparison between savings and CDs?

This spread has actually been growing. Online savings rates have, for the most part, maintained their rates while CD rates continue to fall. For short term savings, it appears to make more sense to park money in an online savings account versus a CD.

Interest Rates

No change from our position last week.

My take: rates will continue to drift lower for the next 12 months. After that, it's hard to tell. I suspect that rates may go up before 2015.

For now though, savers can make the best of a tough situation by getting the very best rates on their money. Remember, even in today's environment, there is competition for your cash.

I hope this is helpful. If it is, let me know and I'll keep writing. Drop me a note or post a comment below.

Have a nice weekend. Until next week...

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