The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Rate Shopping for CD’s

On October 20th, 2008, posted in: Uncategorized by

On the surface, rate shopping for certificates of deposit (CDs) is a prudent thing to do.  You need to understand market rates for the given length of time you want to invest.  But unless it’s a hobby of yours, excessive rate shopping to find the best, highest rate may be a futile and wasteful effort.  In many cases, for the extra few dollars or so you gain in interest earned, you will have spent hours searching and benchmarking.  Is it really worth the effort?

It seems to me that if you establish a relationship with an institution such as St. Louis Community Credit Union – one that strives to pay competitive rates on a consistent basis – you’ll be better off in the long run.  I’ll give you an example.  Recently, I noticed in the paper that a local bank was paying what seemed to be an extraordinarily high rate on a two-year CD.  I know nothing about this bank.  I don’t know how strong they are, and given the recent troubles in the industry, they may be trying to lure depositors in an effort to stem a deposit run-off.  What happens when that two-year CD matures?  Do I trust that they will again pay a competitive rate?  In many cases, the CD rolls over into a two-year CD at a below-market rate.  Gotcha!  It’s exhausting.

At St. Louis Community, we pay above-average rates, generally Top 10, on CDs all the time.  We have competitive rates, consistently.  We work to establish a relationship with our members so that they know they don’t have to “rate shop” all the time.  You never have to wonder whether or not you are getting a competitive rate.

Here is a brief list of things to consider before becoming too rate sensitive:

1. Your time is valuable…establish a trusting relationship.
2. The small amount of extra interest earned is usually not worth the effort.
3. Consider the financial health of the institution.
4. Does the institution consistently pay competitive rates?

So next time you see the latest, greatest, and highest rate at a local bank, be prepared.  You’ll have to perform your due diligence when the CD matures because, in most cases, it’s a “one time, get ‘em when you can” offer.

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