This bank just hiked its 1-year CD rate to a fresh high

Published Mon, Oct 9 20231:04 PM EDTUpdated Mon, Oct 9 20231:24 PM EDT

Stashing money in safe assets is paying off — and another bank has just hiked the yield it pays on a 1-year certificate of deposit. LendingClub bumped the annual percentage yield on its 1-year CD to 5.65%, an increase of 15 basis points. A basis point is 1/100th of a percent, or 0.01%. That places LendingClub's 1-year CD some 55 basis points above the median CD peer rate, according to an analysis by Stephens, and it makes the bank's offering the top-paying CD within Stephens' coverage. A few more institutions are likely to join the yield-raising party, particularly as the Federal Reserve's " higher for longer " rate policy stance plays out, according to an Oct. 6 report from Stephens analyst Vincent Caintic. "Following the market now anticipating a higher for longer rate cycle, we've seen a reversal of the CD rate cuts initiated in September by a few of our online banks," he said. "We think we may see some additional online bank rate increases in the next few weeks, as we think the steepening of the yield curve was unanticipated and will push time deposit rates up further," Caintic added. The upside of buying a CD is you get to lock in your rate for the duration of the time you hold the instrument. Banks can always adjust the yields they pay on savings accounts, which are currently more than 4% at some institutions. Investors seeking safety will also appreciate that the Federal Deposit Insurance Corporation covers each depositor up to $250,000, per insured bank and for each account ownership category. In addition, investors who want to protect principal in a CD can avoid the price volatility that has been hitting both the stock and fixed income markets lately. There's a trade-off for the generous rates and the stability: Investors who bail from their CD before the maturity date forfeit some of the interest. Further, as yields have run higher this year, investors snapping up CDs should be aware that they may be on the hook to report and pay taxes on interest income when they file a tax return next spring. — CNBC's Michael Bloom contributed reporting.