One of the latest arrivals on the financial product scene is the 100-year certificate of deposit (CD). This innovative offering is making waves for its unusual term length and the unique benefits it could potentially offer.
“The CD makes for a good addition to a donor advised fund, part of a charitable giving strategy or a trust intended to benefit a future generation,” says Joe York, Walden Mutual Bank’s senior vice president of partners and impact. “But it’s also an attractive fixed income alternative for an individual or organization, even if not held to maturity.”
As with any financial product, it’s important to understand its features, benefits and potential risks before proceeding. Read on to learn what a 100-year CD is, how it works and suggestions for alternatives.
What is a 100-year CD?
A 100-year CD is a type of certificate of deposit that has a fixed term of 100 years. This long-term CD is an investment product where you deposit a certain amount of money and earn a fixed interest rate over the 100-year term.
Walden Mutual Bank offers such a CD, with a fixed annual interest rate of 4.75 percent for the entire term. The minimum investment is $1,000, and you can invest up to $150,000 per individual or organization. This CD type is insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, ensuring the safety of your investment even in the event of a bank failure.
Mary Grace Roske, head of marketing at CD Valet, tells Bankrate that Walden’s 100-year CD is “one of a kind.” She says the bank offers investors who want to focus on environmental responsibility a chance to align their passions with their savings.
How does a 100-year CD work?
This financial product is designed for those who are looking to leave a legacy or support future generations. With a 100-year CD, your money is locked in at 4.75 percent APY with interest compounded daily and credited monthly. You can withdraw the interest earned at any time without penalty, either automatically or by request.
However, the principal amount is not as flexible. You can withdraw the entire deposit before the CD matures, but it would incur a penalty equivalent to 10 years’ worth of interest.
According to Walden Mutual, this means if you withdraw after 20 years on a $1,000 CD, you would receive $1,942, equaling an effective interest rate of 3.32 percent. In 30 years, you can anticipate a return of $3,443, reflecting an effective interest rate of 4.12 percent. Know that Walden Mutual requires customers to open one of their Grow Local accounts before purchasing a 100-year CD.
“Grow Local accounts combine many of the features of a checking account (like a linked debit card and mobile check deposit) with a competitive interest yield,” says York. “In order to fund the 100-year CD, account holders open and fund their Grow Local account before transferring funds into the CD.”
Potential benefits and risks of a 100-year CD
The main advantages of a 100-year CD lie in its safety and security. As an FDIC-insured product, it provides a safe haven for funds.
This CD potentially offers higher interest rates and APYs than more liquid accounts like savings or money market accounts, and it provides guaranteed returns over the term. Also, the long-term nature of a 100-year CD allows for the benefit of compounded interest over an extended period.
However, there are drawbacks to consider. A 100-year CD has limited liquidity and penalizes savers who withdraw funds before maturity. The rates may not keep pace with inflation, which could reduce the purchasing power of your savings over time.
There’s also an opportunity cost, as money in CDs could potentially earn more if invested in higher-yielding assets such as stocks or mutual funds. Finally, the interest earned is subject to taxation, and if withdrawn early, it could incur penalties that might reduce the principal value. It’s important to weigh these factors against your financial goals, risk tolerance, and investment horizon when considering a 100-year CD.
Is a 100-year CD right for you?
How can you decide whether a 100-year CD makes sense for you? Certified financial planner Taylor Kovar, Founder & CEO of 11 Financial, recommends assessing your long-term financial goals.
“The type of consumer best suited for a 100-year CD is someone who has a long-term philanthropic or generational wealth-building goal and is comfortable with a long-term investment timeline,” Kovar tells Bankrate. “This product may appeal to individuals who want to leave a legacy or support causes they care about while also earning a competitive interest rate. However, those who may need access to their funds in the near future or are concerned about inflation may not be well-suited for this type of CD.”
The 100-year CD offered by Walden Mutual allows for the withdrawal of accrued interest without penalty. Although the principal can be withdrawn at any time, there’s a significant interest penalty. Consider your long-term investment goals and your financial situation before committing to such a long-term investment.
Alternatives to a 100-year CD
While a 100-year CD offers unique benefits, there are other long-term financial instruments that might be more suitable. Consider all of your options before making a final decision.
“Better alternatives to a 100-year CD may include a diversified investment portfolio specific to an investor’s risk tolerance and financial goals,” says Kovar. “This could include a mix of stocks, bonds, real estate and other assets that offer potentially higher returns and greater liquidity. Also, setting up a trust or endowment fund may provide more flexibility and control over charitable giving while still allowing for long-term financial planning.”
Roske agrees that there are better alternatives to the 100-year CD. She highlights potential stock market returns, for example.
“Investors who keep their money at work in the Standard & Poor’s 500-stock index have benefitted from an annualized stock market return of around 10 percent over the long haul, and that’s certainly better than the 100-year CD rate,” says Roske. “But, the 100-year CD captures the ‘think globally, act locally’ mindset. There’s a psychological income for people who invest in this manner, and for them, the positive impact they have on the world is more important than solely financial gain.”
Bottom line
While a 100-year CD offers a unique investment opportunity with its fixed term and potential benefits, it’s important to carefully consider the potential risks and alternatives. If you have long-term philanthropic or generational wealth-building goals, it can be a suitable choice, but for others, a diversified investment portfolio or setting up a trust may be a better option. Before investing, take the time to evaluate your options and choose the one that best fits your needs.
