4% Bank CD Rates: Free Money or Too Good to be True…

Published on June 17, 2021

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Have you ever been approached by a financial professional who is promising wildly high bank CD (certificate of deposit) returns? For instance, a popular promise that is going around currently is a 4% bank CD rate. And this is at a time when the average 1 year bank CD rate is lower than 1%.

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So is this 4% bank CD rate real, a hoax, a scam, or what?

Here is what is happening.

There does not exist any real bank CD that is paying 3 to 4 times the national average bank CD. However, the advertised rate is still real, but it has a few caveats.

Let me explain.

Financial professionals (like insurance agents and some financial planners) are teaming up with local banks, offering the banks highest CD rates (let’s say 1% for example for a 6 month CD), and then they (the financial professional) is personally paying the rest of it out of their pocket.

So if they advertised rate was 4% (for example), and the bank’s best CD rate for a 6-month CD was 1%, the financial professional would pay the remaining 3% out of their pocket.

Why would they do this?

Basically this is the old “up-sell” or “loss-leader” concept being used to capture more money now or down the road.

For instance, what you will see in the fine print of all of these high paying CD deals is that it has a maximum contribution of $10,000 or $25,000. This ensures that the financial advisor will never have to come out of pocket for that much money on any single transaction.

And what the financial professional knows is that in the vast majority of cases, if you have $10k to invest, you probably have MUCH more sitting in other places.

So in essence, they use this tactic to essentially “pay money” to bring you on a client with a very small investment, build a relationship, uncover your other investments, and try to get you to move that over to them as well.

Some things to BEWARE with these CD deals.

  1. Always read the fine print

  2. We have heard of many “last minute” changes where the advisor tells the client that the “bank changed their mind at the last minute due to the deal being so good. So instead of offering that great rate for 6 months, they can now only do 3 months”

  3. Call the bank and find out if your entire deposit will be FDIC insured

  4. Find out how much (and how often) you can put into the CD to get that rate

As always, nothing in here should be considered investment advice. Always go into any deal that “sounds too good to be true” like this with skepticism, read every fine detail, and consult a financial professional that you trust

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What Bank Has the Best Certificate of Deposit Rates

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Category: Certificate of Deposit Submitted by: Robert Henry

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