One of the strong indicators of the demand for additional funds by banks and thrifts is the yield on 3 year CD rates. With a wide range of investment amounts, the three-year term is an attractive combination of yield and duration. The rates can climb with the amounts deposited, and the highest rates usually go with high minimum certificate amounts such as a $100,000 minimum deposit CD.

Small Banks and Thrifts Offer Higher Rates

Online banks and thrift institutions offer 3 year cd rates as a primary tool for raising capital. They offer low minimum deposits and some significant level of yield. This class of CD bridges the gap between long term investment and short-term deposits. The popular level beneath 3 year cds is usually a one-year note.

Examples of best three-year CD offers in January 2016, after the Federal Reserve funds increase in the below-listed items A. and B.

A. Top Bank three-year CDs January 2016

  • EverBank 1.85 percent, $1,500 minimum deposit
  • E-Loan 1.85 percent, $10,000 minimum deposit
  • Silvergate Bank 1.66 percent, $25,000 minimum deposit
  • State Farm Bank 1.65 percent, $500 minimum deposit
  • Capital One 360 1.60 percent, No minimum deposit

B. Top Small Bank and Credit Union three-year CD rates, January 2016

  • Four Corners Federal Credit Union 36 months, 2.78 percent
  • Navy Federal Credit Union 30 months, 2.50 percent
  • Self Reliance NY Federal Credit Union 36 months, 2.33 percent
  • Cedar Falls Community Credit Union 37 months, 2.30 percent
  • Allegany Co.Teachers Fed Credit Union 36 months, 2.27 percent

Advantages of Three Year CDs

The advantage of three-year CDs is in the high yield. Banks and thrift institution present this attractive term as a mainstay of efforts to raise capital for investment.
3 year cd rates are higher than shorter terms, and many institutions offer premiums such as no-cost checking and other discount services as an incentive to investors. CDs are safe and predictable investments. The amount of the deposit carries federal insurance and the risk of loss is theoretical.

Disadvantages of Three-Year CDs

The primary disadvantage is the loss of immediate access to one’s investment amount. As a matter of need or preference, during the term of the CD investors may wish to do something with their money. During a period of rising costs of federal funds, banks may continue to raise yields to attract investment and the current yields may exceed that contained in the three-year CD. CD yields are taxable.

Using a CD Ladder

By buying or arranging maturity dates, one can arrange to have funds available or near to maturity date. Instead of buying one 10,000 CD, one can buy four $2,500 CDs and stagger the maturity dates so that funds come available in a desirable pattern. Called a CD ladder, this strategy reduces to the problem of not having immediate access to funds once invested in a term deposit instrument.

Opportunity Costs

Every investment has an opportunity cost when measured by events that occur during the term of the investment that could have paid more or offered lower risks. During a period of rising interest rates, CDs and Bonds with fixed returns can fall behind trends that provide higher yields. The term of the CD or bond becomes a barrier to higher returns from alternative investments.