5-Year CD Rates Show Biggest Decline Since August - Weekly Rate Update

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Rates on Certificate of Deposits ended their winning streak of the last three weeks with 3 year CD rates declining 1 basis point and 5 year CD rates declining 5 basis points. That's the largest drop we've seen in the 5-year CD rates since August. The 1-year rate rose 1 basis point. Let's hope this is a just a one-week decline and that next week rates will move up again.

Savings and CD rates continued their slow drift down over the past week. The stock market stayed near the 10,000 level as banks reported record profits. How could they not? The Fed has engineered the economy so that banks can borrow money for basically free and then lend it out for 20%+ on a credit card balance. That's called minting money. Goldman Sachs is finding all kinds of useful things to do with free money, as its profits attests.

This week, the mainstream press finally began to catch on to something we've been talking about for the last year - that savers have been taking it on the chin and helping subsidize the rescue of the banking system. An article by Allen Sloan printed in Fortune and then reprinted in the Washington Post said the following:

"This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers? Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being cheated by the government's bailout of the imprudent."

There was almost identical language in an article in Smartmoney by Andrew Bary:

"It's also time for the Fed to consider the plight of the country's savers, who now are getting less than 1% yields on money market funds and who are being forced to take substantial interest-rate or credit risk if they want higher yields. "The Fed is punishing prudent people and rewarding profligate people," one veteran investor tells Barron's. Many unemployed and underemployed Americans may be deserving of some mortgage relief, but there also are millions of Americans — most of them elderly — who diligently saved and now have little income to show for a lifetime of effort."

So, will these articles make a difference? Probably not. The Fed will probably raise rates only when the the latest asset bubble has already formed and is ready to pop. Isn't that the way things seem to work in the country now? Pump and dump.

About the only thing a saver can do is to be sure there money is in a high yield account. Don't give it to the banks at .25%. Make them pay 1,2, or even 3%. Check out the best savings rates and cd rates on BestCashCow to be sure you are making the best of a tough situation.

On to rates this week.

CD and Savings Rates

Rates on Certificate of Deposits ended their winning streak of the last three weeks with 3 year CD rates declining 1 basis point and 5 year CD rates declining 5 basis points. That's the largest drop we've seen in the 5-year CD rates since August. The 1-year rate rose 1 basis point. Let's hope this is a just a one-week decline and that next week rates will move up again.

Savings rates continue their very slow drift down, falling 2 basis points from last week. The average savings accont rate is now 1.7% APY. I was looking through my data and just three years ago savings accounts yielded almost 5% APY. It's hard to see how we can have a healthy economy with that kind of difference. If the economy continues to show signs of life, I don't see how the Fed can continue to hold rates so low.

Looking at the difference between savings rates and 3-year CD rates we can see that the spread has regained its record high. This reflects the fact that savings rates fell further (-2 basis points) than 3-year CD rates (-1 basis point). My interpretation is that investors and depositors refuse to lock their money up long term (longer than 2 years) without some decent compensation. Even as the Fed has nailed short term rates to the floor, long term rates have risen as fears of a financial crisis have faded. The question remains on how long the Fed can keep short term rates grounded. If you have any thoughts on that, I'd be interested in hearing them. Leave a comment below.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Connexus 1-Year 0.71% APY with $5,000 minimum
Banesco USA 1-Year 0.70% APY with $1,500 minimum
CFG Bank 1-Year 0.67% APY with $500 minimum
USAA Federal Savings Bank 3-Year 0.91% APY with $175,000 minimum
Connexus 3-Year 0.90% APY with $5,000 minimum
Comenity Direct 3-Year 0.85% APY with $1,500 minimum
USAA Federal Savings Bank 5-Year 1.11% APY with $175,000 minimum
Community Federal Savings Bank 5-Year 1.10% APY with $500 minimum
Connexus 5-Year 1.01% APY with $5,000 minimum

See More Online CD Rates →

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