Savers may want to lock in high interest rates for the long haul before they likely head lower later this year.
But is 100 years too long?
Concord, New Hampshire-based Walden Mutual Bank is finding out. The financial institution is offering a100-year Local Impact Certificate of Deposit (CD) paying a fixed 4.75% annual interest rate.
The CD is open to anyone with $1,000 and up to $150,000 to invest and is Federal Deposit Insurance Corp (FDIC) insured up to $250,000. The CD allows people to invest alongside Walden to support local agriculture, specifically lending to food and agriculture businesses in New England and New York, the bank said.
“A five-year CD is common, a ten-year CD is a rarity, and a 100-year CD is one-of-a-kind,” said Mary Grace Roske, spokeswoman at CD rates comparison site CDValet.com. “Walden Mutual has created a unique opportunity for people who want to align their values — environmental responsibility, in this case – and their savings, and it’s a creative spin on socially responsible investing.”
Learn more: Best current CD rates
What is the 100-year CD?
Here are the details:
- Minimum investment of $1,000 up to $150,000 per individual or organization:
- Fixed 4.75% APY for the 100-year life of the CD
- FDIC insurance up to $250,000
- A completed beneficiary form is mandatory at account opening
- You may withdraw your entire deposit at any time by request, subject to a penalty of 10 years’ interest. If you withdraw the CD before 10 years, the penalty will reduce the principal value of the CD.
- Interest paid can be withdrawn penalty-free at any time, automatically or by request. In approximately 15 years, more than half of your deposit will be interest, which is withdrawable on demand, penalty free. For example, if you purchased a CD for $1,000 and withdrew it after 20 years, you would receive $1,942, or an effective interest rate of 3.32%.
- Partial withdrawal of principal is not permitted.
- It isn’t callable by the bank, meaning only the holder can redeem the bond early.
What is Walden Mutual Bank?
Walden is a mutual savings bank and a certified B-corporation, or a for-profit corporation certified with a social impact. Walden’s focused on serving farms, food businesses, sustainability-related business and nonprofit organizations, according to CDValet.com.
It’s a mutual bank, meaning it has no shareholders and it’s owned by its depositors, Walden said.
Walden was founded in 2022 as “an online bank for everyone who eats/makes/grows/cooks/loves local food,” its 2022 annual report said.
Chief executive Charley Cummings combines a business degree with an agricultural background, having started a meat Community Supported Agriculture (CSA) that allows consumers to buy shares of a farm’s harvest in advance.
Why a 100-year CD?
Walden said a 100-year CD allows it to offer local agricultural businesses longer-term loans.
For example, “a low margin farm may not be able to support the payments on a 10-year mortgage for farmland, but if those terms are extended to 30 years, the payment is manageable,” Walden said. “In order to support those longer-term loans, we need longer-term deposits to ensure we can properly manage our balance sheet.”
Is the 100-year CD a good investment?
Walden said, “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, but it is also an attractive fixed income alternative for an individual or organization, even if not held to maturity.”
But if you’re looking solely to maximize returns, some advisers say look elsewhere. Here’s why:
- Interest rates may rise above the 100-year CD’s fixed 4.75% rate and you’ll lose out, Roske said.
- The broad S&P 500 stock index has returned 8-10% annually, on average, for the last century.
- Significant early withdrawal penalty of 10 years of interest, which could include loss of principal if less than 10 years. “Other CDs lose interest only,” said Steve Azoury, founder of Azoury Financial.
- Walden Mutual has a short operating history, Azoury said. “The CD’s covered by the FDIC, but you could get a big hassle if (Walden) closed up.”
- Potential tax headaches of reporting CD interest for a century, Azoury said. Beneficiaries must pay tax yearly on their portion of the interest after the original owner passes, “and if you have multiple beneficiaries, what if one wants to cash it out and another doesn’t?” A charity wouldn’t have to worry about that, though.
Saver’s delight:Time to give CDs a spin? Certificate of deposit interest rates are highest in years
Who’s the right investor for a century CD?
“It is a conservative strategy to incorporate into a charitable giving plan, or a trust intended to benefit a future generation,” Roske said. “Of course, there are more profitable ways to invest, but the 100-year CD captures the ‘think globally, act locally’ mindset of a growing number of people.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Greater Louisville’s elected officials and business leaders have been busy in recent years implementing policies to create a more competitive and business-friendly environment. As many of our peer cities are seeing exorbitant housing prices and costs of doing business, Greater Louisville is seizing this opportunity to market our advantages in affordability, logistics and quality of life. Over the past year, the Kentucky General Assembly lowered the state’s personal income tax by a full percent and is working diligently to meet revenue triggers to further reduce it in the coming years. Plus, they have invested in innovative programs like the Kentucky Product Development Initiative, that are helping to make our state more attractive to corporate investment.
KY budget:Kentucky Senate budget includes much more spending out of the state ‘rainy day fund’
We are already seeing the pay-off from these programs and other policies. Last year, Greater Louisville Inc. grew our economic development project pipeline by 93%, showing there is rising interest in businesses relocating and expanding to our region. But we cannot stop here. In addition to addressing long-term issues like workforce participation and public safety, we have to finish what we started with tax reform by creating more opportunities for community investment through local tax structures.
Louisville has a unique economy that employs hundreds of thousands of people and welcomes millions more through tourism. Right now, much of the city’s funding comes from taxation on our workers through an occupational tax. If we can change the model—taxing consumption rather than production—not only will we keep more money in Louisvillians pockets, we will also increase our ability to invest in community assets by capturing consumption-based revenue.
What can Louisville learn from other cities to improve tax law?
Two years ago, GLI took a group of 120 business and elected leaders to Jacksonville, Florida for our annual Greater Louisville Idea Development Expedition. We heard from Jacksonville’s top leaders who attributed much of their success to updated infrastructure and improvement projects funded by small and incremental local taxes. From infrastructure investments to downtown revitalization, local funding for these large-scale projects and a competitive tax code has helped Jacksonville grow at an accelerated rate with more than 100 people moving to the region per day. One of our top takeaways from that trip was that Louisville, and all of Kentucky’s cities, needs more flexibility in creating revenue streams to fund projects and support the needs of their communities.
Will Tax reform help Louisville?Submit your letter to the editor here.
Right now, Kentucky’s Constitution limits the General Assembly from being able to update revenue-raising options at the county and municipal level. Occupational taxes remain the primary revenue generator in Greater Louisville. While the passage of state tax reform in 2022 emphasizes a move from production-based taxes to consumption-based taxes, our local governments are not reaping the same benefits.
GLI has prioritized local tax reform for many years. However, there has never been a more important time to make it a reality. If we are serious about making Louisville and all of Kentucky an economic powerhouse, we cannot afford to kick the can on local tax reform another year or two. Businesses are eager to invest in our region, so the time for building a competitive taxing structure is now.
A few weeks ago, Rep. Jonathan Dixon filed Kentucky House Bill 14, which will set up a voter referendum in November, and if approved by the majority of Kentuckians will amend Section 181 of the State Constitution to allow the General Assembly to create parameters in which a county, city, town or municipality could review and revise taxing structures. We strongly encourage the General Assembly to pass this measure and give Kentuckians the freedom and tools needed to create new local opportunities for investment.
Condrad Daniels is the president of HJI Supply Chain Solutions and Chair of the Greater Louisville Inc. Board of Directors. Sarah Davasher-Wisdom is president and CEO of Greater Louisville Inc.
NEWPORT – City officials are trying to raise capital to fund over $500 million in needed infrastructure and capital improvements over the next five years, but a county-wide real estate professionals group warned against a recent proposal from the City Council to levy a tax on property sales of more than $2 million, as it might prevent local homeowners looking to sell from doing so.
“Our average price in Newport is about $800,000 and that does not get you much,” Newport County Board of Realtors President Sandi Warner said. “Two million is not a mansion. Two million is just a house.”
The City Council is considering asking its legislative delegation to submit a bill that would allow the city to impose a 3% tax on real estate sales over $2 million, which city administration believes would generate between $4 million and $5 million annually that could be put into a restricted, interest-bearing Resilience and Sustainability Fund.
The proposal received pushback when it was first discussed at a February City Council meeting, leading the council to continue the discussion to this upcoming meeting on March 13. Warner said taxes like these will chill real estate in Newport, which has been in an odd spot recently following the hot sellers market of the past two years.
“It’s an unusual market,” Warner said. “If you have a nice home and you are well-priced, you will probably get two or three offers on it. If you are throwing a number up on the wall just to see if it will stick, the buyers have been in the marketplace for longer now and they are very educated. They are not willing to pay these wild numbers that we did see two or three years ago.”
‘Mansion tax’ in use in other cities
Warner said the type of tax the city is proposing is typically referred to as a mansion tax, as it is a progressive tax on property sales over a certain sum. A handful of states have such a tax in place, but at different thresholds and with different rates. Connecticut’s legislature passed a bill in 2019 imposing a 2.25% conveyance fee on home sales above $2.5 million. New York home sellers have been paying a progressive tax on real estate transactions higher than $1 million since 1989.
In Los Angeles, 58% of residents approved Measure ULA, a 4% transfer fee on estate transactions over $5 million that increases to 5.5% on properties over $10 million, during the 2022 election. The abbreviation stands for “United to House L.A.,” and was established to fund affordable housing projects and provide resources for residents at risk of homelessness. Since then, multiple lawsuits have been filed to argue against the tax, one of which a Superior court judged recently dismissed.
Although the Newport County Board of Realtors has only discussed the issue briefly, Warner said the main concern is the $2 million threshold. Of the 282 properties sold in Newport over the past year, Warner said 10%, or 30 properties, were sold for more than $2 million. This includes single-family homes, multi-family homes, commercial properties and vacant land sales.
Additionally, 455 properties in Newport that were previously assessed as being worth under $2 million are now over that threshold following the most recent reassessment.
“It’s unprecedented the amount of equity that homeowners have in their home in Newport right now,” Warner said. “That’s money that they have. If they decided to sell their home, that could fund an early retirement. That could fund moving out of state. That could fund college educations. There’s a plus side to it. The downside is it is out of reach to purchase in Newport for many locals.”
Other options and a possible battle
Warner suggested a better solution might be to levy a smaller real estate conveyance tax on a wider range of property types. For example, Little Compton’s Agricultural Conservancy Trust is primarily funded through a 4% real estate transfer tax on property sales over $300,000.
If the City Council plans to pass the proposed legislation onto its delegates at the State House, Warner said she expects the statewide RI Association of Realtors to fight it. The association has three active lobbyists working at the State House currently as well as a political action committee, the Realtors PAC of RI, which has contributed campaign funds to Rep. Marvin Abney and Sens. Dawn Euer and Lou DiPalma, all of which are members of the city’s delegation, between 2020 and 2023.
As a trade organization, Warner said the Board will continue to advocate for its industry. However, as a member of the Newport community, she said she sympathizes with the council as it grapples with funding all of its needed infrastructure improvements.
“Nobody wants to be taxed, but… we’re being told is that there is an infrastructure need north of $500 million, and this expense is, I thought well described by Councilor Aramli, not to make Newport shining and new, this is to keep Newport going,” Warner said. “Nobody doesn’t want to pay taxes, we don’t want to see real estate slow down, but how do we raise this money? I don’t know…At some point, we’re going to all have to come together and figure out how to do this.”