February 6, 2009 Update
Savings and CD rates continue to fall although as the chart below shows, the fall seems to have moderated in the last couple of weeks. Despite this moderation, Bankman dubbed yesterday Tumble-a-thon Thursday as the rates of some of the previous savings and money market leaders fell significantly.
One good point that Bankman raises is that while rates are far lower than they were a year ago (at the time FNBO was the rate leader with a 6% APY account) inflation is also markedly lower. A 3% APY with 1% inflation is the same as a 6% APY with 4% inflation. So in reality, savers are no better or worse than they were 12 months ago.
Now is probably not the time to lock into a long-term rate though. Why? Because once the stimulus plan kicks in, inflation could increase. Right now the top 5 year CD is H&R Block, paying 4.25% APY. If the economy does pick up that's an awfully low rate to be locked into for the next five years. As I said last week, staying with short to mid-duration certificates of deposit (1-2 years) may be the most prudent course at this point. Of course, if we get a Japan style 10 year zombie bank, no inflation period, a five year CD paying 4.25% APY might look awfully good.
The changes from the pervious week are:
- Savings Accounts: 11 basis point drop from 2.96% to 2.85% APY
- 1 Year CD: 3 basis point drop from 2.95% to 2.92% APY
- 3 Year CD: 2 basis point drop from 3.19% to 3.17% APY
- 5 Year CD: 4 basis point drop from 3.73% to 3.68% APY
Note: 100 basis points represents 1%. Thus a drop by 100 basis points would be a drop from 4% to 3%.
Here are the rate of drops for the eight five weeks since the Fed dropped rates, in percentage points.
- Savings Accounts: -.07, -.05, -.11, -.04, -.05 , -0.07, -.03, -11
- 1 Year CD: -.14, -.24, -.16, -.11 , +.08 , -.40, +.02 , 0.03
- 3 Year CD: -0.0, -.33, -.13, -.09, -.16 , -.13, +.06 , -.02
- 5 Year CD: -.01, -.36, -.08, -.01 ,- .17 , -.18, +.08 , -.04
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