I have been looking around recently and I notice quite a few places offering (and marketing) 11-month CDs. Basically, I am just curious as to what is the reasoning behind 11-month terms vs. 12 month terms? The only thing I could think of would be some kind of asset/liability matching, but I don't really know. I asked two of my professors here at school, and they didn't have a great idea either.

Thanks ahead of time to anyone with input.

Purely a business move by banks - they offer "odd" month terms because it increases the chances that you will overlook the maturity date and have the funds roll-over automatically to a new term CD.

For instance, it would be easy for you to remember that your CD comes due every April 1, right? But by making it 11 months, you have to remember to make a decision by March 1 - if you don't, the bank gets to earn margin interest on you deposit for another 11 months

11mo CDs are GREAT for a typical 0% balance transfer deal!

But I suspect that banks most often offer unusual terms on promotional CDs, while their "standard" CDs tend to have more normal terms.

Choe and Mark,

Pardon my lack of knowledge regarding CDs, but I am not really familiar with balance transfer terms considering all my transfers in and out of accounts have never had fees. So why is an 11-month term beneficial in regards to balance transfer?

spitz10 said:Choe and Mark,

Pardon my lack of knowledge regarding CDs, but I am not really familiar with balance transfer terms considering all my transfers in and out of accounts have never had fees. So why is an 11-month term beneficial in regards to balance transfer?

Ha, that was going to be my (incorrect, but good for us) answer!

They are talking about utilizing a 0% BT sum of money from a Credit Card. Say you have a 12 month BT offer on your credit card. If you have a 12 month CD, you will end up having to pay 10% interest (or whatever the default after your 0% period is up) for about a week, or however long it takes for the 12 month CD to mature compared to how quick you got your money in. Some cards start their 12 month term the day your account is activated, which means that you won't get your card for at least a week, and can't do a BT until after that. That can make for a two week period of time where if you don't pay the CC off with your own money, you will have to pay interest.

Edit: To sum up, a 11 month CD gives you a month of buffer.

afeld said:spitz10 said:Choe and Mark,

Pardon my lack of knowledge regarding CDs, but I am not really familiar with balance transfer terms considering all my transfers in and out of accounts have never had fees. So why is an 11-month term beneficial in regards to balance transfer?

Ha, that was going to be my (incorrect, but good for us) answer!

They are talking about utilizing a 0% BT sum of money from a Credit Card. Say you have a 12 month BT offer on your credit card. If you have a 12 month CD, you will end up having to pay 10% interest (or whatever the default after your 0% period is up) for about a week, or however long it takes for the 12 month CD to mature compared to how quick you got your money in. Some cards start their 12 month term the day your account is activated, which means that you won't get your card for at least a week, and can't do a BT until after that. That can make for a two week period of time where if you don't pay the CC off with your own money, you will have to pay interest.

Edit: To sum up, a 11 month CD gives you a month of buffer.

So, by banks offering 11-month CDs, are they doing it on purpose to cater to this type of business?

Probably the reason why banks are offering 11 month is so that they can classify the CDs as short term obligations which probably in turn resulted in lower reserve requirement (i.e. they can make more loans with the same capital).

I know in the corporate banking world, many loans are structured as 364-day to take advantage of that.

Two reasons:
1) They don't want all of their 12 month CDs that are automatically maturing to get the higher promotional rate. They want to target that rate for new customers or new money. Yes, they could just put a stipulation that only new money qualifies for a higher rate, but that ticks off a lot of existing customers.
2) Newspaper and magazine "highest rate" tables usually only list standard maturities like 6 months, 1 year, etc. Getting published in one of those tables attracts a lot of "hot money" that will vanish when the CD matures. They may want to try to attract a more stable base that will stick around and just let the CD renew at whatever rate and that will buy other banking services like loans and checking accounts.

My 'guess' is that they advertise a APY percentage and because it is not really a true year, that it is actually less of a amount that they are paying out. Yes, you do get the monthly APY equilivant for the term but it looks better and fools you into thinking you are getting more. Kinda like when gas was priced at 99.9 cents, as it is really a dollar but it looks like it is less than a buck. Whatever reason it is, you can bet it is for the BANKS benefit and not for the benefit of the depositors. The banks never lose.

Dovetonsils said:My 'guess' is that they advertise a APY percentage and because it is not really a true year, that it is actually less of a amount that they are paying out. Yes, you do get the monthly APY equilivant for the term but it looks better and fools you into thinking you are getting more. Kinda like when gas was priced at 99.9 cents, as it is really a dollar but it looks like it is less than a buck. Whatever reason it is, you can bet it is for the BANKS benefit and not for the benefit of the depositors. The banks never lose.

I can see your point, but I do not believe that is the case. I say that because I have had 13-mo and 14-mo CDs before.