Investing can be fun, despite low CD rates

White piggy bank on beach

Occasionally, I discover something new (for me, at least) in the world of banking.

The discovery can turn an otherwise mundane and increasingly unrewarding search for yield into an enlightening experience.

Recently, while surfing bank websites for the latest CD rates deals, I stumbled upon Androscoggin Bank’s 12345 CD.

The 12345 CD is a blended-rate instrument. It has a term of five years, and its rate automatically increases every 12 months.

For the first year, its APY is 1.00%; it's 2.02% in the second year, 3.04% in the third year, 4.07% in the fourth and 5.12% in the fifth. The five-year blended APY is 3.05%.

I liked this CD. Its five-year blended rate was well above the five-year yields offered elsewhere.

Also, blended rates for consecutive periods within its five-year term were competitive with those of CDs having comparable maturities.

The 1.51% APY for the first two years, for example, compared favorably with the yields on 24-month CDs offered online. And the 2.02% APY for the first three years was more than competitive with the top-tier 36-month rates out there.

Now, there are pitfalls as well as benefits to blended CD rates.

Although Androscoggin ultimately decided not to offer this certificate of deposit nationally, it permitted me (a loyal existing customer) to open one for my IRA.

My fascination with blended-rate instruments soon led me to discover the Federal Home Loan Banks' Step Rate Bonds, issued by the FHLB Office of Finance.

The FHLB system is a government-sponsored enterprise, not a group of true banks. Its consolidated debt is not FDIC-insured or backed by the full faith and credit of the United States.

The Step Rate Bond I considered (again for my IRA) has a 4-1/2-year term, and its interest rate increases a specified amount quarterly, beginning 12 months after issuance, going from 1% initially up to 8% eventually.

Its yield-to-maturity is 2.95%.

But there’s a nasty catch -- unlike the Androscoggin 12345 CD, it’s callable at par every quarter.

Although I winced at the call exposure, I bought (through a broker) a new-issue Step Rate Bond anyway. Go figure.

If nothing else, my discovery of a new CD and a new "bank" demonstrates that bank investing can be interesting -- if you work at it.

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