I remember those beans from grade school, if you got them from Jack you could climb a fairly large stalk after the Chicago River flooded on your land downstream. 
1980 that was the Prime Rate I believe (21%). I don’t think you can get a CD that matches the Prime Rate ever…banks would lose money.
So potentially the CD rates were lower but still in double digits?
My wife and I bought our only house in Dallas in October 1977. The mortgage was with First Texas. The rate was 8.25% plus one or two points. It was a 30-year mortgage; we paid it off in 18 years. We paid 50% up front, which probably resulted in a somewhat lower rate because of the large down payment.
According to the Federal Reserve Bank of St. Louis, the maximum interest rate on CDs in 1977 was 13.9% for a 90-day certificate. The prime rate in October 1977 was 7.5%.
By December 1980 the highest yield rate for a 90-day CD had climbed to 18.65%. Five years later it had fallen to 9.02%. The rates shown are based on a statistical sample of rates from the banks under the St. Louis bank’s footprint. It is possible that a depositor was able to get a CD rate of 21%.
The prime rate hit an all-time high of 21.5% on December 19, 1980 as part of the FEDS’s efforts to rein in inflation. Approximately a year later it had fallen to 15.75%; two years later it was down to 11%.
Historically, as per the St. Louis Fed, which publishes extensive interest rate information, 90,180, and 360 day CD rates tend to be higher than those for two, three, and five year certificates.
I saw the paperwork on both my parents mortgage was a higher risk than normal due to work issue for my father. The Teamsters union had him blacklisted for crossing the picket line in 73 yet he was still working for a Teamster represented carrier. That added quite a bit to the rate. The reason why my grandmother got that rate it was a special rate the bank was doing for larger depositors. It required a minimum 100k deposit and be held for a minimum of 15 years. When she passed away at the end of 97. 18 years after buying the CDs from that bank they were some of the last ones left. Even then the estate still had a penalty for early withdrawal something like 15% of the overall amount of the final amount.
I’d have to ask my aunt who was the executor of the estate for a copy of the probate record. My mother inherited close to 600k after all was said and done. That was her share of the estate. I know the estate taxes took close to 400k combined at a federal and state level the limit was much lower than now. All I know is what was listed on the paperwork we had until my mother passed away.
You claim 18% for a high risk mortgage when the average rate was about 9%. If that were true then they were badly cheated.
For 20 years? Call me skeptical. I would also find it hard to believe for short term either. However it is possible that this might have been a product of the bad management back then of the S&L’s which resulted in the S&L banking crisis later. As I remember it some of those S&L’s tried to convert to banks or converted to banks and created a bigger mess.
From what I read brokered CD’s are the ones that have the longer terms of 20,30,40 years and higher yields but they usually have a callable provision where the bank can buy them back if the interest rate falls.
Brokered CD’s are usually sold via a Brokerage firm as an intermediary then directly by the bank. I’m not sure on the insurance but I suspect they are not insured by FDIC…yet the $100k increment would be the size of the Max FDIC Insured CD at that time. The reason I point this out is usually you want to limit large $$ amounts (at least they were large back then) in times of uncertainty to FDIC insurance limits. So if the FDIC limit was $100k you would not want to buy a long term CD for $150k.
So back to the $100k, that was the FDIC max insurance coverage for back when Harold said the CD was bought. So it seems like something is a little off still. If it was a brokered CD, did it have FDIC insurance? If it did then 20% would seem extremely high to me. If it did not then the risk to the buyer is higher which would mean a higher interest rate. I don’t think it would stay 20% for 20 years though. I think the Broker or the Bank would have called them back in.
Some annuities work similarly to this as well. Usually, you get offers to purchase the annuity back at a slight premium to the cash value but less than the death benefit or whatever other guarantee it has because the financial institution behind the death benefit / guarantee sees it as a cheaper option than later paying out the death benefit or maintaining the guarantee. In that case it is your option to sell or keep. In the case of a CD with callable option…you have no choice if they call it back.
My grandmother only did long term investments when she made them. She was the treasurer of her church for 40 years and in that time the church never needed to 1 ask for a special offering for repairs never needed to borrow money for anything either. She once was invited by her younger brother to go with him in 84 for the anniversary of the D Day landings in France he was a Veteran of Utah Beach. She went but refused to even take pictures saying the media was there for the pictorial purposes.
How the bank paid that intrest rate out wasn’t rocket science. They issued her the CDs under her name. Then they used other deposits they had to buy more bonds to cover the difference between the federal reserve rate and what they gave her. The difference was used to fund other loans indide the bank. They made this offer to all the customers but it required the large amount of deposit.
My grandmother knew interest rates weren’t going to stay that high forever and jumped in with as much as she could. As she said later in life I saw a chance to make sure I stayed well ahead of the world and jumped.
My grandmother was a child of the depression she was born in 1915 she lived through the end of WW1 the roaring 20s was 14 when the market crashed in 29. She knew what struggling was and was bound and determined that her kids and grandkids wouldn’t have to afterwards.
To quote Charles Dodgson’s magnum opus, “Curiouser and curiouser.”