Quote:
Originally Posted by Stewie
I get that for the short term, but why are 5 year CDs suddenly above 5%? If the consensus is that inflation will drift to 3% or lower, why are long term CDs paying much higher than that?
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I've wondered this myself, but I developed a theory. I have no idea if it's right or not.
If you're a bank, you're typically making some long-term loans. If you pay me a 5 percent rate for 5 years, and then you loan that out to some sucker with a 30-year mortgage at 6 percent or a 10-year car loan at 8 percent, then you're making money.
That said, a JP Morgan CD that I had at 5.6 percent just called it in. That really sucks. I knew it was callable but didn't know how likely it was to happen. It was a 5.6 percent CD so I was really happy, but in the fine print they can call it and just give me my money back early, and they did that. It's the first time I've had that happen, so unless it starts happening more frequently with other banks I'll be avoiding JP Morgan CDs going forward.