This commentary serves to correct a common misconception concerning the yield levels of CDs versus corporate bonds and demonstrate that CDs still represent solid value versus upper-investment-grade corporate bonds.

As of May 21, 2009, the current rates for CDs, AAA corporate bonds and U.S. Treasuries are:

As seen above, rates for one- to five-year CDs are currently higher than rates for AAA corporate bonds. While AAA corporate bonds represent a substantial yield pickup versus corresponding U.S. Treasuries, they do not match the yield levels for CDs. Furthermore, CDs are backed by FDIC insurance, and thus the full faith and credit of the U.S. government. Provided that investors keep purchases under the FDIC insurance limits, it stands to reason that CDs are not only yielding more at present but are also safer than corporate bonds. Therefore, it is important to avoid market noise and the common misconception that corporate bond yields must be better than CDs.

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