Why the 10-Year CD Might Be the Worst Bank Product Ever

The 10-year CD rate might not be worth the wait.

A 10-year certificate of deposit is an investment — designed to mature in 10 years — that offers a safe, predictable return. Unlike stock investments, the FDIC insures CD returns.

Because a 10-year bank CD requires leaving your money in a financial institution for an entire decade, it might actually pose some risk. Locking in a CD interest rate for 10 years is safe, but it prevents you from taking advantage of the best interest rates if they begin to rise.

Ten-year CDs come with other issues, as well. Keep reading to see what they are and how they work — and find alternatives to this type of investment.

10-Year CD Rates From Top Banks

To get an idea of how much interest you could earn on a 10-year CD consult this chart that show what five different banks are offering. Note and compare the rates for money market accounts and one-year CDs.

10-Year CD Rates vs. Other Banking Product Interest Rates
Bank Name Money Market APY Money Market Minimum 1-year CD APY 1-year CD Minimum 10-year CD APY 10-year CD Minimum
Discover Bank of America 0.05% $25 0.03% $1,000 0.75% $1,000
  Chase Bank 0.01% $0 0.05% $1,000 0.05% $1,000
Discover Discover Bank 0.30% $2,500 0.50% $2,500 0.80% $2,500
  Elements Financial 0.05% $0 0.50% $1,000 2.30% $1,000
Chase North American Savings Bank 0.50% $1,000 0.35% $1,000 1.16% $1,000
Rates accurate as of Oct. 15, 2017, except for Chase and Discover, which are accurate as of today; interest rates might rise with higher-than-minimum deposits.

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Inflation’s Impact on a 10-Year CD

Inflation can have a significant impact on the value of a 10-year CD yield because it can reduce the purchasing power of any interest you’re paid over the decade. To find out how much you’ll actually earn in interest, you must subtract Consumer Price Index increases from your current rate to determine how much you have after inflation, which is called the “real rate of return.”

Even if you’re lucky enough to lock into the highest 10-year CD rates available, your real yield might be lower than you expect if inflation is high. Inflation is a variable you can’t accurately predict.

Find Out: Best CD Rates From Vanguard, Fidelity and Other Brokerages

Alternatives to the 10-Year CD

Should you need access to your cash or want a better return, opening a high-yield savings account or investing in the stock market — or even investing in a shorter-term, high-yield CD — might be better than purchasing a 10-year CD. But if CDs are your low-risk investment of choice, you can employ some CD strategies to maximize your earnings. Here are three CD strategies you can use to earn more:

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1. CD Laddering

CD laddering is an option if you like the idea of locking in a rate but don’t like not having access to your money for a decade. When you form a CD ladder, you purchase short-, medium- and long-term CDs — and they’ll mature at staggered intervals.

For example, if you invest in 12-, 24- and 36-month CDs, your 12-month CD will be first rung on your ladder and mature in one year. After the one-year CD matures, you can reinvest that money in a new five-year CD.

When the second year ends, you can continue reinvesting the money from your original two-year CD in another five-year CD. Your ladder will eventually consist entirely of long-term CDs, which earn the most interest. CD laddering makes it easy to start slowly without locking up all your funds for years and years.

Learn More: Why It’s Smart to Ladder Your CD Accounts

2. Bump-Up CDs

Bump-up CDs — also called step-rate CDs — might be a good option if you like the security of a guaranteed return but want to be able to withdraw some funds without being penalized. Bump-up CDs allow you to increase your rate on a CD if interest rates rise.

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Others have built-in, automatic rate increases that kick in over time. Typically, there are limits to how often you can raise the rate.

Wells Fargo offers a 24-month, step-rate CD that enables you to withdraw money once every six months without penalty as long as you leave your original investment in the CD. It also has guaranteed rate increases at seven-, 13- and 19-month intervals — and a minimum opening deposit of $2,500.

3. Bonds

Bonds offer less risk than stocks but more risk than CDs. Bonds are essentially loans that you provide to various entities from government to private business. In exchange for the loan, the borrower pays you interest.

The riskier the bond you purchase, the higher the return you earn. That means you’re likely to make more money from an entity that’s not as creditworthy as others. But in doing so, you also take on more risk that the entity will default on its obligation.

Find Out: How to Choose the Best Bonds for Your Financial Plan

Decide If a 10-Year CD Is for You

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In short, the 10-year CD is not an ideal option for people who want to maintain liquidity. If you need an insured investment that will mature in 10 years — for example, you might have college costs around that time — a 10-year CD can be a viable option.

To get a greater return, however, you’ll probably benefit from investing in stocks and bonds. For security and greater liquidity, consider a high-yield savings or checking account. Finally, if you do choose to go with a 10-year CD, shop around for the best bank CD rates.

Natalie Campisi contributed to the reporting for this article.

Editorial Note: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.

About the Author

John Csiszar

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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