Savings and CD rates were flat last week with both average rates and top rates hardly moving at all.

Savings Rates

Average savings rates remained exactly the same as the previous week at 1.36% APY. The top rates also remained the same with Southern Community Bank's Ready Saver 2% APY Savings Account leading the pack of non-promo rates. For promotional rates, Everbank remains on top with their 3-month introductory bonus rate of 2.25% APY. After the three-month period, the rate drops down to 1.26% APY for a blended one year APY of 1.51% APY. Banks that dropped their rates include:

CD Rates

The average 1-year CD remained steady at 1.61% APY. First City Bank continued to hold the top spot with a 1.80% APY CD. First City Bank is in bad financial shape and has been operating under a FDIC Cease and Desist Order since 10/09. Tennessee Commerce Bank maintained the second spot at 1.70% APY.

The average 3-year CD rate also remained steady at 2.47% APY. Like last week, the top spot is occupied by USAA Federal Savings Bank, which requires a minimum deposit of $175,000. The next highest rate is Acacia Federal Savings at 2.65% APY and a $500 minimum deposit.

The average 5-year CD rate is the only one that changed at all from the previous week. It rose a miniscule 1 basis point from 3.16% APY to 3.17% APY.

USAA has the top rate at 3.31% APY. Everbank continues to have the second highest rate at 3.30% APY. versus the 3.39% APY it was offering last week.

Which Direction Interest Rates?

The prevailing wisdom is that interest rates will be heading higher sometime in the near-term so it's better to invest in short-term CDs or keep cash liquid with money markets and savings rates. But as an article in Bloomberg points out, there is no evidence of inflation on the horizon and if anything, deflation is a bigger concern.

"Demand for U.S. government bonds is increasing. On average, the Treasury received $3.21 in bids for each dollar sold at 10- year auctions this year, compared with $2.63 in 2009 and $2.41 from 2004 through 2008, according to data compiled by Bloomberg.

“Part of what’s frustrated bond vigilantes has been that economic data has ratified the notion of modest growth and continued declining inflation,” said Wan-Chong Kung, a money manager who helps oversee $89 billion at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp. "

Deflation or very low inflation means the Fed can keep rates low for an extended period of time. As the chart below shows, the spread between 1 year and 5-year CDs is at a 2 year high, with a 5-year CD paying 1.50% more per year. The 3.17% APY average yield of a 5-year CD may look pretty good if rates don't budge much in the next couple of years.

EverBank today launched a 3-year MarketSafe Emerging Currency CD. I could write ad nauseum here about how inappropriate this investment is for most unsuspecting investors. I could write about why it shouldn’t be called a Certificate of Deposit. I could write about how I believe that EverBank is violating the 1933 SEC Act. But, wait a minute. I already did. This product is exactly the same as a product that EverBank offered in 2014 and that I wrote about extensively then (see my article here), except that they have replaced one dictatorship’s currency for another (swapping out the Russian ruble for the Turkish lira) and decided that Indonesia’s rupiah is more attractive than South Africa’s rand. The Chinese renminbi, the Indian rupee and the Brazilian real, however, remain constants in this product. The other things that remain a constant is that neither the people offering it nor those buying it have any idea what they are doing, and those buying it will not see any appreciation on their investment.

As a general proposition, this is the wrong time in the cycle to be playing with emerging markets, although some countries have unique circumstances that will enable them to outperform (perhaps Argentina). If you must invest, the play is to invest in those countries or in U.S. or European denominated debt through a fund offered by a big fund family that knows what they are doing in emerging markets (maybe Ashmore). And, if you insist on investing in currencies, the major investment banks offer structured products geared to lever appreciation in U.S. dollar terms should another currency (a single currency) appreciate against it. Under any circumstance, avoid this EverBank product.

The best 3-year CD rates are listed here.

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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