File this under “better late than never”:
A sweet outcome today, finally, regarding my Bellco Index Advantage CD. They finally got 'round to increasing my interest rate. It went to 3.4% APY today.
Q: Shin, are you aware this is not a big deal? How long is the CD?
It’s a 44 month that’ll mature spring of 2021.
Q: OK, so 3.4%, plus or minus, is in the ballpark for a CD like that today. Are you unaware?
Agreed. But I acquired this CD back in 2017 at an APY of 2.4%. Interest rates were lower back then.
Q: So how is the interest rate now 3.4%?
It’s an index CD. The interest rate is indexed to the Federal Funds (FF) rate. The Federal Funds rate is up since I bought the CD.
Q: Yeah, but the FF rate went up back in September. And your rate only increased today?
It’s a wrinkle in the terms of my CD. They increase my rate based on the FF rate on the 25th of the prior month. It was bad luck back in September. The FOMC increased their rate effective the 26th of September. I missed it by one day and had to wait an entire month for the increase.
Q: So is Bellco still offering these things?
Naaaa. They pulled the product back in 2017, shortly after I jumped in.
Q: All right. Are you aware of these indexed CDs being offered today by any other financial institution?
I’m not aware of CDs now available indexed to the FF rate. There are probably CDs out there indexed to other things.
Q: Would you even buy such a CD today . . if it were available?
Not until after next week’s election, that’s for certain. Interest rates could fall.
Q: Fall? So if the FF rate falls, so does the APY of your CD?
Yeah, that’s the risk of this particular CD. The interest rate so far has done nothing but rise. But it can fall equally easily if the FF rate descends.
Q: So some people think there could be another FF rate increase in December. If that happens will your CD interest rate go up again?
Yup. I’m hoping the FOMC “does the right thing” in December!
Q: How about 2019? Can your interest rate keep going up? Or is there a ceiling?
No ceiling. CD interest rate just continues to ascend if the FF rate does likewise.
Q: Not that is appears likely; but if interest rates fall, if the FF rate falls out of bed, can your CD interest rate go to zero?
Not to zero. There is a floor, a minimum interest rate for the CD. I think it is around 2% (not sure). I don’t think the FF rate will be down there before the CD matures.
Q: But regardless what you “think”, your APY could fall. Right?
Yes, it could. Am hoping for the best. But so far so good.