Savings Account and Certificate of Deposit (CD) Rate Analysis

April 19, 2009 Update

The average rate on shorter term deposit accounts fell again this week while the average on longer term CD rates rose for the second week in-an-row according to the BestCashCow rate table. This continues a trend we have seen for the last two months where longer term rates are either rising or falling at a much slower pace than longer term rates. This was not the case at the height of the economic crisis in the fall of 2008, when longer term rates fell at a substially faster pace then short-term rates. The graph below shows that the spread between the average savings/money market rates and the 3 year CD have increased to almost 1 full percentage point, the highest level since we began keeping track in January 2008.

I've received a few emails from people telling me that there is no significance to this, that it's just the fact that some new banks have been added to the BestCashCow rate tables. For the most part, this is not true. This week, seven of the top ten rates on the 5-year CD rate tables were higher than the week before. This is a broad-based gain, not merely the result of adding an extra bank.

This increase makes sense. Who is going to lock their money in for a long period of time at under 2.12% APY, the current savings account average? With all of the talk of massive budget deficits and the government cranking up the printing machine, investors are correctly demanding more of a return and banks are being forced to oblige. Look for long-term rates to continue to rise.

SavingsandCDRateSpread