2.3% On a 5-Year CD

Bond rates are painfully low right now, with a one-year U.S. Treasury currently yielding 0.11%. But what if there were a bond-like instrument structured as follows?

  • A one-year U.S. government agency bond yielding 1.15%.
  • Comes with a free option to earn 2.3% annually for up to four additional years.
  • If you hold for all four additional years, it will pay you a bonus 1.15%.

So I’m claiming this offering has over 10 times the yield of a U.S. Treasury in the first year and gives an option to earn 20 times that one-year U.S. Treasury rate for up to four more years. And don’t forget about that bonus 1.15% if you leave it in the entire five-year period, which one might do if interest rates stay low.

You may be thinking that such a one-year offering with this option and bonus sounds too good to be true. But it actually does exist. The offering is merely reframing the way you would think about a five-year certificate of deposit from Synchrony Bank.

If you invest $25,000 or more, the five-year CD from Synchrony has a 2.3% annual percentage yield. The early-withdrawal penalty is 180 days simple interest, meaning you’d receive a 1.15% yield after paying the penalty should you close it out in one year. That happens to be a tad higher than the 1.1% yield Synchrony’s one-year CD is paying. After one year, you can earn that 2.3% for up to four more years and the bonus 1.15% comes from not paying any penalty by leaving your money in for the entire term. Here are your estimated yields depending on when or if you cash in that five-year CD before maturity, as calculated by DepositAccounts.com:

  • One year: 1.15%
  • Two years: 1.72%
  • Three years: 1.92%
  • Four years: 2.01%
  • Five years: 2.30%

Other good rates exist and depositaccounts.com has a great calculator to estimate your yields, depending on how long you leave your deposit.

So don’t settle for low Treasury yields when you can earn far more with less risk. Rather than try to time when interest rates will rise, here’s a way to have your cake and eat it too. Yes, things that look too good to be true usually are, but here is one exception.