Capital One 360 recently doubled most of their rates on certificates of deposit (CDs). Are you taking advantage of such massive CD rate increases? See why rates are improving and how you can maximize that your cash savings.

The Fed, headed by chairwoman Janet Yellen, will increase rates slowly if it ever happens. Photo: Flickr |

The Fed, headed by chairwoman Janet Yellen, will increase rates, albeit slowly. Photo: Flickr source

Two weeks ago, Capital One 360 made some drastic CD rate increases. The most notable one is the change to the 5-year CD rate, which jumped from 0.90% APY to 2.20% APY. It is now among the nation’s best 5-year CD rates.

Since the housing crash in 2008, I’ve closely watched the deposit rates at online banks, such as Capital One 360, and I know for a fact that Capital One 360 does not implement such big rate hikes for no reason.

Banks rarely ever go into detail as to why their rates change, so I’m deferring to my confident speculation that it has something to do with the Federal Reserve’s impending plan to raise interest rates. You should care about the Fed’s sentiments because their control over interest rates will have an effect that trickles down to your money. When the Fed raises rates, you can expect borrowing rates to rise, but you’ll also earn more interest on your cash savings.

Don’t hesitate: invest in a CD

You might wonder why anyone would invest in a CD right now if interest rates are set to rise. It’s a valid question that many people pose when they hear these talks of rate hikes.

Don't let rising interest rates prevent you from saving now. Photo: Shutterstock
Don’t let rising interest rates prevent you from saving now. Photo: Shutterstock

Here’s why you should still save with a CD now:

1. You don’t want to wait for interest rates to rise before saving. By that time, you could have missed out on plenty of interest earnings.

2. You can build a CD ladder so that you’re always earning the best CD rates without locking all your money away for too long. One way, for example, is to invest $1,000 annually in a 5-year CD. This way, you can take advantage of the highest rates every year.

3. You’re not saving enough. Given how given how little people save (64 percent of Americans don’t have a $1,000 emergency fund), I encourage any type of saving regardless of the interest rate. If you can find the initiative to save, do it.

If you don’t feel comfortable with a CD right now, you can always resort to a trusted online savings account, which have much higher rates than typical savings accounts from big banks.

The real reason why CDs rates are rising now

Our central bank, the Federal Reserve, is showing more substantial signs that interest rates will increase in the coming months. With economic indicators that show healthy employment and inflation rates, a majority of Fed board members believe interest rates will start increasing in September — some even feel that a rate hike in June is a possibility.

Although the Fed hasn’t raised rates yet, banks are already increasing rates ahead of the rate hike.

Capital One 360 has more than doubled the rates of most of their CDs:

Capital One 360 CD TermAPY before 5/14/15APY as of 5/14/15
24 months0.40%1.10%
30 months0.70%1.10%
36 months0.70%1.50%
48 months0.70%1.76%
60 months0.90%2.20%

CIT Bank, Schwab Bank and EverBank are among the popular online banks that are also increasing CD rates across the board.

Did you know? Banks may raise CD rates before the Fed changes the rate policy to attract deposits before the actual rate hike. For example, on a 5-year CD, let’s say a bank is paying 2.00% APY now, but plans to pay 2.50% APY when the Fed increases rates. The bank would rather take your money now at a lower rate than later at a higher rate.

These anticipatory rate increases are not happening to savings and interest checking accounts because there is no benefit to banks for increasing these rates before the Fed actually increases interest rates.

When do you think interest rates will rise? What is your savings strategy in anticipation of Fed’s impending announcement to raise rates?

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