An Unfortunate Trend in CD Interest Rates

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Being an avid saver has its advantages and disadvantages. One of the advantages is that I have money for a rainy day. One large disadvantage is that I am able to notice the recent decline in interest rates. Everyone is excited that mortgage rates are fantastically low, but what is often overlooked is the fact that the decrease in bank revenue is passed to the consumers.

Being an avid saver has its advantages and disadvantages. One of the advantages is that I have money for a rainy day. One large disadvantage is that I am able to notice the recent decline in interest rates. Everyone is excited that mortgage rates are fantastically low, but what is often overlooked is the fact that the decrease in bank revenue is passed to the consumers.

I save lots. Not nearly enough, but save through a variety of mediums. One of which is through CDs. It is through CD laddering that the decline of interest rates becomes most apparent. Personally I have a six rung ladder, staggered every six months. (I.e. 6, 12, 18, 24, 30 and 36 month CDs to begin.) Once each CD matures, it is replaced with a 36 month. Therefore, every six months a new CD is opened.

The concept of the CD is simple in that one often receives slightly higher rates than a savings/money market account and post the financial armageddon one would assume that rates would either rise or maintain a status quo scenario. Unfortunately they have not. Once the Federal Reserve rate declined to a floating 0% - .25% scale, we, I, assumed that rates had bottomed.

I am now in the year phase of my ladder. With this, I have had an initial 36 month CD and replaced the 6 month CD and 12 month CD with a 36 month CDs. When I began, (with the limitation of having $1,000 per investment) the greatest rate I found for a 36 month was through iGObanking.com (a division of Flushing Saving Bank, FSB). This was 2.57%. Fast forward six months and the highest I have found was through Sallie Mae Bank at 2.30%. Fast forward another six months to today, the greatest yield I have found is the Bank of Internet USA at 2.00%. For record, BofI Holding, Inc. (NASDAQ:BOFI) is the holding company for Bank of Internet USA.

So, what does this mean to the saver? There are few places one may save. We are currently in a dystopian environment. Some argue that equities are cheap, but one runs the risk of losing in the stock market. Some may argue that real estate may reap value, but one must have initial capital and be willing to hold for the long term. Some may say commodities, but how far can gold go and at what cost? One could play the arbitrage game in forex trading, but the risks out weight the rewards.

This trend is destined to turn, as everything is cyclical. But, it does merit concern that there seems to be no means to gain at the moment. One fortunate thought is that inflation is low, but how much longer can that stay the case? In order to truly work one’s way out of this quandary is to realize that one must continue to save but expect little to no return.

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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Quontic Bank 1-Year 2.25% APY with $1,000 minimum
Navy Federal Credit Union 1-Year 2.20% APY with $100,000 minimum
BAC Florida 1-Year 2.15% APY with $100,000 minimum
Connexus Credit Union 3-Year 2.50% APY with $5,000 minimum
Navy Federal Credit Union 3-Year 2.35% APY with $100,000 minimum
Bank5 Connect 3-Year 2.30% APY with $500 minimum
Dollar Savings Direct, a division of Emigrant Bank 5-Year 2.80% APY with $1,000 minimum
CFG Bank 5-Year 2.65% APY with $500 minimum
Connexus Credit Union 5-Year 2.60% APY with $5,000 minimum

See More Online CD Rates →

Comments

  • Shorebreak

    January 26, 2011

    You only have two choices. Either ladder out to a longer period of time, i.e. five, six, and seven year terms or put your funds into dividend paying equities and bonds. Currently, you might average three percent on a long-term CD term, if you are lucky, while some decent corporations are yielding around five percent dividends on their shares. I have always gone out for extended terms when it comes to certificates of deposit and am still averaging around four percent.

    Hopefully we have seen interest rates bottom but I'm not optimistic about that. I suspect this Federal Reserve, under Bernanke, is bound and determined to drive every cent of saver's funds into the stock market. Look for a decade-long period of depressed rates and a stock market in another bubble. Possibly there will be an equity sell-off in Autumn 2012, however, prior to the presidential election.

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