CIT Bank CDs With Rising Rate Protection (Rate Hike Update)

Update: CIT Bank actually raised its rates on some of their CDs with a raise-your-rate feature. Rates updated in review below.

As a follow-up to my cash reserves post, I wanted to note that CIT Bank also has some very competitive rates on FDIC-insured CDs with added flexibility that makes them unique. They have a very simple website and appear to be focused on certificates of deposit, although they recently debuted a savings account with a 1.05% APY interest rate on balances above 25k.

Their Achiever CD has a current rate of 1.05% APY for 1-year term and 1.20% APY for the 2-year term with a $25,000 minimum opening deposit. The first unique feature is a “rate bump” option that allows to you raise your rate again in the future if the rate increases. The second unique feature is that you can add more money to your CD one time at any point you choose throughout the term.

You buy CDs to guarantee your rate won’t drop during the term. But these two features allow you added protection from rising rates in the future, and you already start with a competitive rate. You could match future rates, and move your other money over to match those rates as well. The primary limitation would be the higher minimum deposit requirement. Interest is compounded daily.

If you don’t have the $25,000 minimum, they also have their term CDs with a $1,000 minimum opening deposit. Those are paying 1.01% APY for 1-year term, 1.15% APY for 2-year, and 1.30% APY for 3-year. Those are nearly as good as the Achiever CD, but they don’t have the rate-bump and add-on features of the Achiever CD. The early withdrawal penalty is 3 months of interest for the 1-year CD, 6 months interest for the 2-year CD. A quick comparison table:

Name Term Minimum to open Interest rate Features
Achiever CD 1-year $25,000 1.05% APY One-time rate-bump, one-time add-on
Achiever CD 2-year $25,000 1.20% APY One-time rate-bump, one-time add-on
Term CD 6-months $1,000 0.45% APY Low minimum deposit
Term CD 1-year $1,000 1.01% APY Low minimum deposit
Term CD 2-year $1,000 1.15% APY Low minimum deposit
Term CD 3-year $1,000 1.30% APY Low minimum deposit

 

Comments

  1. Squeezer says:

    The rates are still way to low. That’s not even matching inflation. I’d rather take some risk and put my money in prosper/lending club loans and hope for 8-10% returns.

  2. @Squeezer

    Rates are low, but they’re the best rates you can find online. Those looking for risk would never pick a CD account / but those looking for nothing more than security … this is up their alley.

    Never heard of CIT before, but might give them a try.

  3. $1000@1.06% is so low that if my wife and I skip one matinee movie per year we save more than the interest earned on the CD. Thanks Ben Bernanke.

    I’m not an equity person but I’ve found that its pretty easy in the current market to invest $1000 for 3-4 weeks and make $100-$120. That’s 6-10 times the return on these CDs. And If I have to hold on to the equity a bit longer, which I haven’t so far, I usually choose something that has at least a 3% dividend which still beats these CDs.

    So bottom line, though there is some minimal risk I reluctantly take on, I’ve found this idea of substituting small equity purchases for CDs quite effective.

  4. So far we’ve got investing in unsecured loans to strangers and buying stocks in month-long intervals. Must be a bull market. :)

  5. In this kind of environment the most dangerous mentality is reaching for yield. IMO it is better to earn nothing and keep the option of investing at higher rates in a few years than to lock in today’s low yields for a longer term in order to add a few tenths of a percent to the yield or to risk losing capital.

  6. Prashant says:

    This CD rate are historicall low. Are there better ways to put CD in other countries where the rate are high. Some of the big banks do have global deposit programs where you can get more returns with CD. Do let me know if you have more information on that.

  7. Wow! I agree with you on that last comment Jonathan. Risky loans to strangers and short term buy and dump stocks compared to 1 to 3 year FDIC insured CD’s with the ability to capture rising rates. I don’t see any similarity there. I must agree with Andy that this is likely a dangerous environment to be reaching for yield.

    When this already 3 year old bull market turns or we fall into a double dip some people will feel ultimate pain.

    I am especially concerned for David. A 3 percent annual dividend won’t mean too much if the market drops 20 to 30 percent in a week to begin our next bear market.

  8. Jack…..the problem is always one of timing I don’t disagree….but you know….the very common approach of….lets just wait it out a few more years and capture the inevitable uptick in interest rates….has been circulating for FOUR years now and we’re still at 0%. How many 5 year CDs do we all have at Ally for instance that allow one or two bumps if interest rates go up, that will never rise above their initial rate.
    So….as uncomfortable as I am with the situation, I really see no alternative but to adapt and survive. Be smart, never lose sight of whose doing the manipulating and why and just try to anticipate the direction of their coattails to maximize your own self interest. I for one would rather take on that challenge then be one of .008 – 1.45% sheep.

  9. Just by reading some of the comments one can tell a major correction is coming for the stock market…

    Loans to strange can default. Stock market can go down. Two facts that seem to be lost…

  10. Well, the whole reason that interest rates are so low is to stimulate investment in riskier things. It might work, or it might not work, I don’t know. Let all those economists argue that out.

    I invest in all these things: LendingClub, stocks, and FDIC-insured bank deposits. (I have probably 8x more in stocks than cash and 25x more in cash than LC.) But each has their place and stocks can and have dropped 25% in a month or less. Unless you have a ton of LC loans, even a small wave of defaults will kill your return.

    The money that goes in CDs is the money that I know will be there when I need it, even if I have to pay a few months of interest back in the worst case (if I really need it above my liquid deposits, I won’t care about 0.25% in lost interest). It’s nice to have some rate protection if the low rates don’t work and inflation forces higher rates, I wish all my CDs had such a feature.

    @Prashant – The thing you’ll get instead is currency risk.

  11. At such low rates, I like keeping cash in High Yield Checking accounts first, they are easily accessible and pay higher interest if I am able to meet the requirements. In the 2 years I have tried peer to peer loans I have netted 2-4% returns due to defaults.

  12. I agree with Andy and Jack and some of the comments. That said, I don’t know if I would be overly concerned about David. We have made some good “day trading” stock market moves, and I think to myself, “Makes up for loss of yield on our savings, very easily.” BUT, I am also rather risk adverse, and this is maybe only 2% of our cash. (We quit while ahead).

    Online, I often feel like 90%+ of the population doesn’t grasp the purpose of cash. Seemingly every day someone tells me that I should put that money in stocks or real estate. They think I should be “all in with my cash.” This talk always makes me think “bubble.” I particularly notice this with real estate – the talk is so much the same that it was during the bubble. “0% down, put all your money in there, it has nowhere to go but up.” Sound familiar???

    Anyway, it is refreshing to see people who actually understand and appreciate the purpose of cash in a portfolio.

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