Savings Rates and CD Rates Little Changed - Weekly Rate Update

Rate information contained on this page may have changed. Please find latest savings rates.

Savings rates and CD rates were little changed from a week ago, with rates moving 1 or 2 basis points for the various products. The top rates for various cd terms and savings accounts were unchanged from a week ago. The spread between short term and longer term deposit accounts remained elevated.

Last week the Fed gave its first indication that it might start raising rates sometime in the future. Bernanke stated that the Fed may raise the Discount Rate before long. The discount rate is the rate at which banks can take emergency loans from the Fed. It is not the same as the Federal Funds rate, which is more influential in impacting interest rates. Still, it's a start.

Over the past week, the issue of sovereign government default became more prominent as Greece jockeyes for a bailout from the EU. Many believe that Greece's debt problems are just a prelude to more problems from other highly indebted nations - Spain, Ireland, Italy, Japan. And some, like Marc Faber believe that mounting debt levels could even impact the United States.

Looking at the Federal Funds Rate predictions chart (below), you can see that markets do not anticipate a rate increase through the June Fed meeting. I suspect the rate will stay pegged at 0-25% a good deal longer, and potentially through the rest of 2010.

FedFundsRatePredictionChart

A low Fed Funds Future rate means low rates on savings accounts, money markets, and certificates of deposit for a good deal longer.

Savings Rates

Average saving rates hit a record low again last week moving from an average rate of 1.46% APY to 1.45% APY. While the averages have come down, the highest rates on the BestCashCow rate tables have remained steady. The highest rate is the Everbank Money Market Account, which is offering a 3-month guaranteed promo rate of 2.25% APY. The 1-year APY for the account is 1.51%. Following that is Franklin Synergy with a 1.75% APY and EBSB with a 1.67% APY. Other attractive CD rates are CNB Bank Direct at 1.50% APY and American Express Bank, FSB also at 1.50% APY.

CD Rates

Both the average 1-year CD rate and the average 5-year CD rate rose slightly over the past week while the average 3-year CD rate fell slightly.

The average 1-year CD rate rose by 1 basis point from 1.82% APY to 1.83% APY. The top rate continues to be 2% APY offered by Southern Commerce Bank.

The average 3-year CD rate fell by 1 basis point from 2.61% APY to 2.60% APY. The good news is that most of the rate leaders on the table remained stable. The top 3-year CD rate continues to be 2.8% APY offered by Hudson City Bank.

The average 5-year CD rate rose from 3.29% APY to 3.31% APY. The top rate continues to be iGOBanking's 3.55% APY CD. Acacia Federal Savings Bank also has a competitive IRA only CD paying 3.50% APY. The next best 5-year rate is Everbank at 3.37% APY. This marks the third week-in-a-row that 5-year CD rates have moved up.

Savings,CDRateAnalysis

Both the cd spread and the savings/cd spread remain near record highs. What does that mean? It means as a depositor, you are being compensated more highly for putting your money into a longer-term deposit account then you were even a year ago. This isn't a suprise as savings rates have collapsed while longer-term CD rates have come down much more gradually.

As we discussed last week, the elevated ratio means it may be worth taking a look at a longer-term CD, especially one that doesn't have an onerous early-withdrawal penalty. You can now earn 1.5 percentage points more by opening a 5 year CD versus a 1-year CD. If interest rates stay low for the next couple of years, as is possible, then perhaps this elevated spread makes opening the account worth it.

SavingsandCDSpreadAnalysis

Regardless of this analysis, CD laddering may be a good way to smooth out the return you receive from your CD portfolio. Several banks have come out with breakable CDs (First Commons Bank article), that allow users to withdraw money penalty free, and still other banks are lowering the withdrawal penalty for removing money before maturity.


Marketwatch - Time for Fed to Help Savers

Rate information contained on this page may have changed. Please find latest savings rates.

Irwin Kellner, the Chief Economist or Marketwatch came out with an article today parroting what we've been saying for the last year: the Fed is punishing savers to the benefit of borrowers. The mainstream press has sporadically written articles about this but it's good to see it continuing to get attention.

Irwin Kellner, the Chief Economist or Marketwatch came out with an article today parroting what we've been saying for the last year: the Fed is punishing savers to the benefit of borrowers. The mainstream press has sporadically written articles about this but it's good to see it continuing to get attention.

In his article he writes:

"It can't come a moment too soon for the silent majority -- the nation's savers.

In its efforts to shore up the banking system, the Fed has neglected the needs of those who save. And in case you did not know it, savers make up the bulk of the population."

But are savers the silent majority? When you add up everone who has a mortgage, credit card, car payment, home equity loan, business loan, etc. I find it hard to believe that there are more savers. We run on a credit economy, not a saver's economy. That's why the outcry over low interest rates hasn't been louder. There are a lot of people who have debt or use credit and they are all benefiting the current environment.

I know that I am. I'm a saver but I also benefited from low rates by refinancing my mortgage.

The other question to ask is, did the Fed have any choice? Shouldn't credit be less expensive in a financial meltdown? After all, it makes no sense to raise interest rates while the economy is crumbling. The Fed is not going to keep rates at 5%. Of course rates were going to come down.

But that doesn't make it an easy pill for those loving on a fixed-income to swallow.

What can a saver do? Get smart. Look for the very best places to put money. Don't let money sit in a savings account earning .5% when banks are offering 1.5%. Look for the very best CD rates. Shop around. 

If all the talk about inflation is correct, then savers may soon see their fortunes reversed, as rates climb quickly.


Opening A Savings Account to Use As An Emergency Fund

Opening A Savings Account to Use As An Emergency Fund

Rate information contained on this page may have changed. Please find latest savings rates.

An emergency fund is a great way to help yourself stay out of debt. But what can you do in this economy to save money for your emergency fund?

An emergency fund is an ideal way to keep yourself out of debt. Many times, people use their credit cards when an emergency arises and then they continue to use them until they can barely make the minimum payments. As a result, they go deeper and deeper into debt simply because they used their credit card for an emergency. Here are some strategies for building your emergency fund and staying out of debt.

Start Now
The best way to start building an emergency fund is to start right away. You don’t have to wait until you get a windfall of money to begin an emergency fund. You can start just by taking a sandwich to work every day instead of going out to lunch all the time. You could save $20 or $30 each week by doing that and putting that money into your emergency fund. At the end of the month, you could have more than $100 in the fun. That’s enough to cover some emergencies even without a credit card!

Make Some Cuts
There are always things you can cut out from your budget to save money. Do you really need all those movie channels? Do you have to buy the DVD of a movie when it comes out instead of renting it? Do you have to go to Starbucks every day before work? Take a look at your spending habits and the luxuries you pay for and see what you can cut out and put towards your emergency fund. You might even find out that you don’t even miss those things after a couple weeks.

Keep Your $5 Bills
You have probably heard of Bank of America’s Keep the Change program. This concept uses the same idea but on a larger scale. When you use cash, keep any $5 bills that you have. When you get change at the gas station or wherever, take any $5 bills and set them aside for your emergency fund. Or, if you can afford it, do $10 bills instead. You will be amazed at how much you will save in just a couple months.

Set Aside Half of All Extra Money
If you get a bonus or some extra money for whatever reason, but at least half of it aside for your emergency fund. After all, this is money you didn’t plan on having in the first place so it should be no sacrifice using it for your emergency fund.

Saving for an emergency fund may give you less spending money in the immediate future, but it will save you hundreds or even thousands of dollars in interest in the long run. Instead of paying for your emergency with a credit card along with all the interest that accrues, you can simply pay for the situation with cash and be done with it for good. It’s a good financial habit to get into, but it takes some work and motivation to get started.