Don’t let short term rates affect long term thinking

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With interest rates higher than they have been in literally decades, retail investors and pros alike are once again forgetting history, donning their dunce hats, and repeating the same assumptions they did the last time rates moved with some conviction.

When offered longer-term investment strategies which lock in the current high-interest rates, most all those who have money to invest are turning down locked-in rate investments in lieu of short-term products like 3-month CDs and T-bills currently paying north of 5% APR.

On the surface, having the opportunity to sock money away on a 3-month term yet get over 5% APR sounds like a good deal, and it is, but it’s not the best deal.

The shortsightedness on behalf of investors that continue to scoop up 3-month T-Bills and CDs is solely based on the interest rate and the length of the tie-up. After all, 5% APR on a 3-month investment certainly sounds lucrative, but keep in mind the 5% is for 12 months, not 3 months, so you would have to buy them every 3 months, and that’s IF the interest rates don’t change.

And therein lies the problem. 


To begin with, I am constantly bringing new investments to consumers that lately have been meant to minimize risk yet provide a decent return. The “minimize risk” part is because it is in my opinion the market may have stopped its hemorrhaging for now but I highly doubt our inflation problem will go away anytime soon and a recession looms. 

Looking back on interest rates the last 2 or 3 decades illustrate a country that has a debt problem. Mainly the fact that consumer, government, and business debt is continually increasing at an alarming rate. 

If debt continually increases, interest rates would and will have to continually decrease to service that debt.

 And true to form, a three or five-year moving average of interest rates in the United States shows a persistent downward trend. Recent memory for many think of bank savings rates as near zero and it’s only recently have we seen rates as high as 5% or more.

There is a reason the Federal Reserve (FEDS), which set interest rates, has not been able to maintain higher interest rates for a prolonged period of time and it’s because of our gigantic debt levels. 

Every time the FEDS have increased rates in the last few decades they tend to break something and have to reduce rates again. Think back to the dot.com, Y2K, and 9/11 events that resulted in the FEDS lowering rates to ground level in response. That resulted in the adjustable rate/ refinance craze which eventually resulted in financial Armageddon. That in turn caused the FEDS to drop rates to near zero once more.

Now the FEDS are back in the up mode and, if history is any indication, they will eventually break something, and be forced to drop rates again.

Investors, however, still resist locking in the current high rates with longer commitments.  

They still opt to instead buy short-duration CDs and T-Bills thinking the 5%, three-month term is an incredible offering and will continue.


What they fail to realize and therefore are missing a once-in-a-blue-moon opportunity to secure high rates for years to come, is that 3-month CDs and T-bills are just that: 3 months. 

If the FEDS drops rates again, down will go the rate on the 3-month products, and you are right back to earning nothing.

Yes, a 3-month CD offering an APR of 5% looks good on the surface, but historically, they may not stay there for long.

One might consider the longer-term offerings that lock in those healthy returns and guarantee them and your principal.

Although 5-year CDs and T-bills might be actually paying lower rates, there exists annuities, laddered portfolios, and other investment vehicles that will lock in rates for many years to come.

Unlike the refinance craze where many homeowners assumed when their mortgage rates adjusted they could just refinance, many investors are thinking the same thing when it comes to predicting where rates might go, versus where rates can go. 

The bottom line is high-interest rates might not stick around very long. Thinking they will is shortsighted and could be costly. 

Better to look at history and use some common sense, and consider longer-term and guaranteed solutions. In other words, get while the gettin’s good, and get those high rates locked up! Have questions? Feel free to send me an email.

“Watching the markets so you don’t have to”

(As mentioned please use the below disclaimer exactly) THANKS   (Regulations)

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. that can be contacted at (530)559-1214. Marc was voted best financial advisor in the county 2021. Email: [email protected]

Marc Cuniberti

Marc Cuniberti

Marc Cuniberti
Host of Money Matters Radio on 67 radio stations nationwide, Financial and insurance columnist for the Union and 5 other statewide newspapers, owner BAP insurance and registered financial advisor representative at Vantage Financial. California Insurance License OL34249 and feature on ABC and NBC television and a host of TV documentaries on his financial insights.

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