The Certificate of Deposit and Treasury Bill Opportunity for 2023

With CPI reports spiking to a 40-year high this year due in part to a global supply chain trainwreck from pandemic lockdowns and the subsequent cost-push inflation factor with a blistering pace of interest rate hikes via the Federal Reserve, economic data points are deteriorating at a quickened pace that’s manifesting a daily recession reality for plebes and small businesses alike. Combine that financial heartache that’s partially due to geopolitical chaos and incompetent energy policy wrought by Biden and Capitol Hill’s woke ineptitude and it’s no wonder U.S. stock markets have plunged. Yesterday’s bear market close marked 2022 as the worst year for indices since 2008 and the Great Financial Crisis (GFC). Peruse that bear with my technical analysis published on Dec. 29, “Dow, Nasdaq, S&P, and Russell for Winter 2023.”

Surprise! CDs are back in vogue with Treasurys as safe havens for your cash… “If there’s a silver lining to the current economic situation that features soaring inflation and falling stocks, it’s that savers can get more for their money. Even after just a few months of rising interest rates, you can find online savings accounts yielding more than 3%. But that might not be good enough anymore… The Federal Reserve continued to raise rates through the end of 2022, and yields on savings products are now high enough that they look like a safe haven compared with a stock market that’s in the red this year. And that means certificates of deposits, or CDs, are back in the conversation — even if that comes with caveats. Advisers still favor Treasury bills, notes, and Series I savings bonds for getting the best combination of low risk and high yield, but some are looking more seriously at CDs now… If you have funds beyond that for savings, consider Treasury bills or notes because the rates are higher, says Tumin. Then consider CDs. That’s what Nolte is doing with some clients, particularly older ones who have past experience with them. ‘Why not get something guaranteed? It’s maybe not keeping pace with inflation, but you’re not losing principal,’ says Nolte.” – MarketWatch, Dec. 31

Despite the financial market insanity that has left few safe havens beside gold available in brokerage account trading and savings vehicles, the Fed’s monetary policy provides an attractive opportunity if you commit a little time to due diligence. Many investment options in the Certificate of Deposit (CD) universe are offering a rate of interest income not seen since before the GFC, plus they’re FDIC-insured.

Your goal depends upon the amount of capital you have available to invest, the ideal terms and overall time horizon you have in mind, and whether or not you utilize a laddering strategy. Going forward, “we’ll see CD rates continue to increase for the next six months or so as the Fed continues to raise the Federal Funds Rate,” PNC’s Faucher said in an email. CD rates will likely peak sometime in late 2023 depending on how the Fed tweaks monetary policy in a weakening economy with a potential hard landing.

“You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.” – Warren Buffett

Interest rates paid on long-term CDs are typically higher than rates offered on short-term CDs. Many investors consider the one- to two-year terms as a sweet spot. In current market conditions, the majority of banks only offer marginal increases in rates for longer CDs. When committing to a longer-term CD to take advantage of a higher rate, that strategy can backfire if interest rates are increased substantially. If you access funds that are tied up in a CD before its maturity date, you can do so but you’ll have to pay an early withdrawal fee. That fee typically equates to a specific number of days or months of interest earned.

Historical CD Rates by Year (1967 to 2022)… “Since 1967, the average yield on the three-month CD — considered a key CD indicator because it’s so sensitive to prevailing interest rates — has ranged from a high of 18.5% in the early 1980s to a low just above zero for long stretches in the 2010s and early 2020s.” – Money Crashers, Dec. 21

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Short-term (those of 4, 8, 13, 17, 26, and 52 weeks) Treasury Bills (T-Bills) are an attractive option at upcoming auctions by opening a TreasuryDirect account because the yields they can offer are directly linked to the Fed’s monetary policy. Any fixed-income instrument is subject to the ebb and flow of the open market, but short-term T-Bills have historically moved nearly in lockstep with the Fed Funds Rate (currently at 4.25-4.50%). The relationship is strongest with the 1-month, 3-month, 6-month, and 1-year T-Bills. TreasuryDirect eliminates middlemen, offers a rapid turnover with a broad range of maturity options, and gives a higher rate of return than many CD options currently available.

Recent Treasury Bill Rates and Maturity via TreasuryDirect

Recent Treasury Bill Terms and Rates – TreasuryDirect


Top CD Rates December 2022 vis U.S.News

Best CD Rates in December 2022 – U.S. News


Effective Fed Funds Rate vs. U.S. Inflation Rate

Effective Fed Funds Rate Vs. U.S. Inflation Rate – YCharts, Dec. 15


There’s a plethora of portals you can explore for U.S. CD recommendations, terms, rates, and minimum deposit requirements, such as Bankrate, Bauer Financial, Fortune, Investopedia, NerdWallet, and U.S. News. Note that Bauer “does not accept advertising from banks and no bank pays for its rating or to list its rates.”

CDs offered by legacy brick-and-mortar institutions, credit unions, the secondary market through brokerage firms like Charles Schwab, and online banking businesses offer a variety of terms, rates of return, and “no-penalty CDs” at lower yields to mitigate early withdrawal fees. Some banks have a required minimum deposit while others don’t. No matter where you choose to deploy cash, take a moment and check on the bank’s star rating at Bauer Financial, especially if you decide to venture outside your current banking establishment to take advantage of a more favorable rate and/or term.

Good luck with CD or T-Bill investing, and have a happy New Year!

How to Invest in Treasury Bills via TreasuryDirect – The Frugal Analyst


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The Certificate of Deposit and Treasury Bill Opportunity for 2023

The Certificate of Deposit and Treasury Bill Opportunity for 2023