December 26, 2008 Update
The impact of the Fed's rate cut to 0-.25% continues to be felt in the Certificate of Deposit and Savings rate market with rates dropping significantly in some CD terms over the last week. The decline in savings account and money market account rates was much more muted. In general, longer term CDs are showing the largest rate declines. The changes from the pervious week are:
- Savings Accounts: 6 basis point drop from 3.32% to 3.26% APY
- 1 Year CD: 24 basis point drop from 3.76% to 3.52% APY
- 3 Year CD: 33 basis point drop from 3.97% to 3.64% APY
- 5 Year CD: 36 basis point drop from 4.43% to 4.10% APY
Note: 100 basis points represents 1%. Thus a drop by 100 basis points would be a drop from 4% to 3%.
Savings rates have held up particularly well despite repeated Fed Funds rate reductions. Since early October when rates peaked, the Fed Funds rate has come down 175 basis points (1.75 percentage points) while the average savings rate based on the BestCashCow rate table has dropped by just 38 basis points (.38 percentage points).
The avareges though don't tell the whole story. While the Fed Funds rate has dropped by 175 basis points, the very best savings rate hasn't dropped at all. On October 3, the best rate in the country was DollarSavingsDirect at 4% APY and CNB Bank Direct at 4% APY. DollarSavingsDirect still has a 4% APY offer. Of course these are savings accounts and rates could change tomorrow but it's encouraging to know that many banks on the BestCashCow rate tables are keeping rates competitive and attractive to depistors.
The very best Certificate of Deposit rates have dropped a bit more. The top 1 year (12 month) CD paid 5% APY one year ago and it now pays 4% APY. The top 3 year (36 month) CD dropped from 4.78% APY to 4.05% APY. Thus, as an invetor while you could have maximized return by locking in a CD in early October, there are still some attractive savings and CD rates available.
As I discussed last week, banks are still hungry for your cash and will pay you pretty good rates (considering the market) for it.
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DollarSavingsDirect Raises Online Savings Rate to 4% APY by Sam Cass - Oct 10, 2008
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