Longer-term CD Rates on Rise - Weekly Rate Update

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Rates on Certificate of Deposits rose in the last two weeks, and the average 5 year CD rate according to the BestCashCow rate table is now at its highest since August 2009. The average for the 5 year CD has risen from 3.24% APY to 3.42% APY. Are we seeing more sparks of life? It would certainly take more yield to convince me to lock my money up for five years, especially if the economy is reviving. Perhaps this sentiment is gaining steam.

The Dow hit 10,000 this week as markets topped their 52 week high. I've been surprised that the market has continued to go up in the face of mounting forecolosures and continued losses in the banking sector (Bank of America, Citi). Unemployment also continues its inexorable rise although the pundits have conditioned us to believe that it's a lagging indicator and shouldn't impact the economic recovery.

And one question that remains unanswered for me is this. If the US economy is 75% consumer driven, and consumers are tapped out, what is driving this stock recovery? If anyone knows, please tell me.

Economic indicators do point to a recovery, or at least a thawing inthe recession. Iinflation actually increased month-over-month in September, rising .2% versus .1% in August. Still, neither reading is going to get me running for the hills to panhandle for gold. In an article on the inflation readings, Sam Cass made the point that in the past two downturns, low inflation persisted well into the recovery. Indeed, the spike in prices that occurred once the economy recovered was mainly a spike in asset prices - stocks, real estate, bonds, etc. Income and other items measured by the CPI never really showed much of an increase. That's what allowed the Fed to keep rates low and feed each of the investment bubbles. Even the spike in oil in 2008 was due to trading and speculation as opposed to fundamentals.

CD and Savings Rates

So, how does this translate into savings and CD rates? Rates on Certificate of Deposits rose in the last two weeks, and the average 5 year CD rate according to the BestCashCow rate table is now at its highest since August 2009. The average for the 5 year CD has risen from 3.24% APY to 3.42% APY. Are we seeing more sparks of life? It would certainly take more yield to convince me to lock my money up for five years, especially if the economy is reviving. Perhaps this sentiment is gaining steam.

Savings rates continue their very slow drift down although the pace of descent should really be described as glacial. In the last 8 weeks, the average savings account rate has dropped by only 8 basis points from 1.80% APY to 1.72% APY. For all intensive purposes, savings rates have bottomed and are now waiting for the Fed to raise rates to begin climbing. That may not happen for some time.

Looking at the yield curve we have developed for deposit accounts we can see that the spread between savings rates and 36-month CDs reached a new high last week. This reflects the rise in longer term CD rates even as savings rates continue their glacial descent. The yield curve is steepening which is normally a sign of economic recovery and expansion.

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)
CFG Bank 1-Year 0.67% APY with $500 minimum
Primary Bank 1-Year 0.65% APY with $1,000 minimum
Comenity Direct 1-Year 0.63% APY with $1,500 minimum
Comenity Direct 3-Year 0.85% APY with $1,500 minimum
First Internet Bank of Indiana 3-Year 0.81% APY with $1,000 minimum
Connexus 3-Year 0.75% APY with $5,000 minimum
Primary Bank 5-Year 1.15% APY with $1,000 minimum
Connexus 5-Year 1.00% APY with $5,000 minimum
First Internet Bank of Indiana 5-Year 0.96% APY with $1,000 minimum

See More Online CD Rates →

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