CD rates about to become interesting

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If you were smart, you took some or all of your money out of the stock market -- out of ETFs, indexes, emerging market mutuals, etc. -- and hunkered down into cash.  We are in a recession and the sub-credit mess has seriously weakened the economy, and specifically the banks.  But there is more bad news to come and we will have serious volatility and bear market conditions for many months to come.  But cash may be a safer place to park, but you can certainly get hurt in an increasingly inflationary environment.

Interest rate returns right now are terrible.  Treasuries are the safest, but their yields are the poorest.  Who wants to earn 2% on T Bills, especially when inflation is beginning to soar.  CDs are doing much better, now mostly offering 3 to 3 1/2 for a few months.  If you go out longer, the returns are only slightly better, but then too you are locking your money away for far too long. 

In fact, in this environment, the biggest mistake you can make is to try to earn a few basis points more by buying longer term treasuries, CDs or the like.  Too much can change fast, and you will feel very foolish sitting there earning 3% when rates climb to 5 and more in time.  Your best bet is short term paper, and CDs are offering the best rates at the moment.

Nonetheless, I would leave cash in money market accounts for just a little longer before buying 6 month to 1 year CDs.  As more and more banks start really hurting for cash infusions, over the next month or two, there will soon be a real CD rate war and very interesting short-term opportunities will surface.  I would not be surprised if one can find the old 5% six month CDs and even 5% one year CDs in a matter of weeks.  Already, Countrywide is offering a 6 month at 4.9%.  It is about to happen across the board.  So my strong advice is sit back, give it a few weeks, and then put your money away short term in CDs.


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Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
M.Y. Safra Bank 1-Year 2.51% APY with $500 minimum
Sallie Mae Bank 1-Year 2.50% APY with $2,500 minimum
Discover Bank 1-Year 2.30% APY with $2,500 minimum
Pentagon 3-Year 3.25% APY with $1,000 minimum
Popular Direct 3-Year 3.10% APY with $10,000 minimum
M.Y. Safra Bank 3-Year 3.06% APY with $500 minimum
Bread Savings, a division of Comenity Capital Bank 5-Year 3.65% APY with $1,500 minimum
M.Y. Safra Bank 5-Year 3.26% APY with $500 minimum
Popular Direct 5-Year 3.25% APY with $10,000 minimum

See More Online CD Rates →


  • soczie

    February 03, 2008

    Agreed, for the first time in many years, short-term CDs stack up very well against savings accounts and other short-term options for cash.

  • Arnold

    February 03, 2008

    Options are the best play now. High volatiliy is perfect. Cash accounts barely keep up with inflation.

  • Anonymous

    February 04, 2008

    Arnold, Bear Markets frustrate everyone. The market is about to go sideways for months IMO, now is the worst time to buy options.

  • Burns

    February 11, 2008

    Please define recession? I don't think we have had negative growth for two quarters. Of course if not careful it could become a self fulfilling prophecy! We have however started a slow down in th economy. Very funny how things changed in the media when the Democrtaic and then republican Prez candidates started talking about it !!

  • Anonymous

    March 05, 2008

    5-year CD rates have spiked up to 4.25% and over ( I might be tempted to lock-in 4.25% for the 5 years and wait out the fed rate cuts and recession

  • Steve

    March 11, 2008

    Here we are 5 weeks later and CD rates are PLUMMETING and the FED is ready for a 75 basis point cut next week. 1 year treasury is down to 1.46% and 3 month T Bill is 1.35% today. Your prediction was wrong. I locked in 5 year CDs in October 2007 at 6%. The Fed isn't finished slashing rates. And when they are finished they may keep rates low for YEARS to come. The economy is in deep trouble and we are headed into the worst recession since the Great Depression.

  • Ron Shays

    March 13, 2008

    I agree with Steve. Bad prediction on your part. Locking in at 6% would have been a smart move. Of course, everything is clear in hindsight.

    Now, I'm not going to put my money in a CD longer than 1 year. Rates may fall further but I can't stomach the thought of locking in at 4% for a long time.

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