The Federal Reserve’s raising of short-term interest rates might be good news for yield-hungry investors, if you know where to look, and what to look for.
Online banks, local banks, and credit unions have been quicker to boost yields while money market funds also have passed on these rate increases to consumers. Larger, traditional banks have been slower to act.
Meanwhile, long-term rates have barely budged, giving investors little reason to lock up their money in multi-year CDs. Instead, CDs with maturities of one year or less seem relatively attractive.
Recently, for example, the average yield on a one-year CD was 2.83 percent; for three-year CDs, the average yield was 3.55 percent. Thus, on a $25,000 deposit, you’d only earn an extra $180 per year, for tying up your money for two more years. Money market funds, now paying over 2.5 percent (the highest level in four years) are expected to be yielding 3 percent by year-end so they may be even more appealing than one-year CDs now.
