The Vanishing Act of High-Yield CDs and What It Means for Savers

The Federal Reserve’s rate-cutting spree has had a devastating impact on high-yield Certificates of Deposit (CDs). Just two years ago, banks were offering rates as high as 5% on short-term deposits. Now, with the national average CD rate plummeting to 1.68%, many savers are feeling the pinch – and being insulted by renewal offers that seem more like afterthoughts than genuine attempts to retain customers.

The collapse of high-yield CDs has left savers scrambling for alternatives. However, there’s a growing trend of exchange-traded funds (ETFs) that have managed to generate impressive returns despite the Fed’s rate-cutting moves. The JPMorgan Equity Premium Income ETF (JEPI), the Janus Henderson AAA CLO ETF (JAAA), and the Vanguard High Dividend Yield ETF (VYM) are among these outperformers.

These funds employ creative strategies to generate income, such as selling covered calls on blue-chip stocks or investing in floating-rate CLO tranches. Unlike traditional bank CDs, which tie their yields to the Fed’s interest rate regime, ETFs have managed to insulate themselves from the worst effects of the recent rate cuts while still delivering attractive yields.

The JPMorgan Equity Premium Income ETF (JEPI) has built a portfolio of large-cap US stocks and sells upside on these via covered calls. This approach results in a monthly distribution that’s paid consistently, with an enviable expense ratio of just 0.35%. Over the past year, JEPI has returned 11.46%, with top holdings like Broadcom and Apple contributing to its success.

The Janus Henderson AAA CLO ETF (JAAA) takes a different approach by investing in AAA-rated CLO tranches with floating-rate coupons. This strategy minimizes stock correlation and volatility while delivering an ultra-low expense ratio of 0.20%. The results are impressive: over the past year, JAAA has paid out $2.487981 per share on a monthly basis, with total returns of 4.87%.

The Vanguard High Dividend Yield ETF (VYM) offers a more traditional approach to dividend investing by holding a portfolio of high-dividend-yielding stocks – including stalwarts like AbbVie and Ross Stores. This ETF has managed to return an impressive 26% over the past year, with monthly distributions averaging $4.58022 per share.

For savers watching their bank CDs dwindle in value, this trend offers a crucial reminder: there’s often more than one way to generate income on your savings. By diversifying into ETFs like JEPI, JAAA, or VYM, investors can tap into a world of opportunities that are largely immune from the Fed’s interest rate regime.

Of course, any investment strategy comes with risks, and not all ETFs will perform as well in every market environment. However, for those willing to look beyond traditional bank CDs, these three funds offer an attractive alternative – one that’s less tied to monetary policy and more focused on delivering consistent income and returns.

As the Fed’s next move remains uncertain, it’s worth keeping a close eye on the broader landscape. Will investors continue to flock to ETFs as a safe haven from rate uncertainty? Or will traditional bank CDs stage a comeback once the Fed’s easing cycle finally ends? Only time will tell – but for now, at least, there are plenty of reasons to believe that the world of high-yield savings is far from over.