Savings and CD Rates Steady - Weekly Rate Update Sept. 21

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

The big news last week on the rate front was the general lack of inflation in the economy. The Labor Department's CPI numbers rose .4% in August versus July but from a year earlier decreased 1.5%. At this rate, the Fed is under no pressure to raise rates.

The big news last week on the rate front was the general lack of inflation in the economy. The Labor Department's CPI numbers rose .4% in August versus July but from a year earlier decreased 1.5%. At this rate, the Fed is under no pressure to raise rates. Speaking at a seminar in Helsinki today, Nobel award winning economist Paul Krugman said that the US has $1.1 trillion in idle capacity. It's hard to see large price increases in the short-term in the face of such a capacity glut. At the same time Krugman did say that "The consequences of that [a downturn that drags on] are that you start to have problems with financing the debt and you start to have social and political problems."

So could we be faced with rising interest rates even as inflation remains low?

As the charts show, there is no significant change to report with savings rates and CD rates. The average savings rate and 1-year CD rate according to the BestCashCow rate tables stayed the same from the prior week. The average 3-year CD rate dropped by 2 basis points to 2.66% while the average 5-year CD rate rose 4 basis points to 3.37%.

Like the economy, rates seem to have pretty much hit bottom. The question now is when they will go back up. It may be some time.

There's no significant change to report in the spread between savings rates and 36-month CDs. The spread ticked down a bit but nothing that isn't within the normal range of the past few months. Notice that the spread between savings and 3-year CDs that we saw widen in the Spring is still there, a hopeful sign that the economy is poised for expansion. One wonders who will blink first: will longer term CD yields come down in the absence of any sign of inflation, or will short term savings and CD accounts rise as the economy strengthens?

Based on this data, it would seem that any rate increases won't come until sometime in 2010. Nevertheless I would stay short-term and wait. An improving economy and a glut of Treasury debt will eventually put some pressure on rates.

SavingsandCDRateAnalysis

The spread between the average BestCashCow savings rate and 36 month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.

SavingsandCDRateSpread


You and Your Retirement Account

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

Whether you have retired or just switching jobs, this article is for you. In this first part we will go over employee stock options and what to do with them. In the second installment we will go over your 401k, your IRA, and what to do about them. Happy investing

 
 
Most people, at some point in their career find themselves changing jobs at least once. Long gone are the days when one stayed in his/hers job from fresh out of college to retirement. The reason for this is not something we will get into in this article. This is for those who find themselves with some sort of retirement plan that needs their attention.
Quite often, part of an individual’s compensation comes in the form of employee stock options. If you have not been given stock options, or the opportunity to purchase them, you will probably have heard of them, but not heard enough to appreciate what a wonderful product you have here.
Employee stock options are shares of the company’s own stock, and are often free, or at a deep discount. Employee stock options are often used as tools other than cash to attract top industry talent.
Here is an example of what one’s compensation package may entail. For the purpose of this article let’s just say that IBM is selling for twenty dollars a share. Fred has just been offered the option to buy one thousand shares of his company’s stock for sixteen dollars a share.
So that does that mean for Fred? He can purchase a few chairs or all one thousand of them at the discounted price of found of sixteen, or sixteen thousand dollars. Fred can now sell all or part of his shares at the new market price of twenty dollars a share. Now there is a risk here. Your stock options will have an expiration date, and it is possible for them to expire worthless.  
The more value a company places on their new hire, the deeper the discounted the stock price will be. Quite often a new employee will be given stock options for just pennies a share, but that is generally reserved for the upper echelons of the companies personal.
One must always keep an eye on his/hers options less they do expire worthless. I recall on particularly sad story involving a young woman and her stock options. As the expiration date drew near, several of us made numerous attempts to contact her. We even filled up her answering machine warning her about the upcoming expiration date. She had a large number of shares and was not in the position where she could afford to lose out on that money. Each phone call ended with some variation of “I don’t have time to deal with this now. I will call you when I am ready.”
She finally did call us back and I happened to hear part of that phone conversation and it was not pretty. She had just lost over two hundred thousand dollars and there was nothing any of us could do about it.
So what are my options when I exercise my options, and what are my tax consequences, if any?  When you decide to exercise your option, so you don’t have a disaster like the individual above, you have two basic choices.
·         Exercise and hold.
·         Exercise and Sell
 If you decide to exercise your options and there is a difference between the grant price (that is the cost of the shares that were granted to you) and the market price of the stock when you exercise, you will have a tax consequence and you need to talk to your tax professional.
If you decide to exercise your options and buy them (you pay the grant price) then of course you will have to pay taxes on the gain, or difference between the grant price and the market price of the stock the day you exercise them.
Here is a short example. Fred, when hired by Xoomoo Tech. was given a thousand shares of the company’s stock at one dollar a share and he is thrilled because the current market price was five dollars a share. Fred is required to hold his shares for two years before he is able to exericise.Two years later Fred decides to exercise his employee stock options, and he would like to exercise all one thousand shares. Fred pays one thousand dollars (a figure based his grant price and the number of shares exercised). Seeing that Xoomoo is trading at six dollars a share, he decides to lock in the profit and sell his shares on the market. Fred just made five thousand dollars, but has a long term taxable gain of five thousand dollars. If Fred had chosen to hold on to his shares, it is still a taxable event as Fred has a paper gain of five thousand dollars. Contact your tax professional.
Alright, so now you know just a little more about your retirement account, so in the second issue in this series we will cover what your options are with regards to leaving your account as is, or change into a self directed retirement account.
Happy Investing.

Savings Rates Down and CD Rates Mixed - Weekly Rate Update Sept. 11, 2009

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

Treasuries showed strength this week, with Treasury bond yields staying low despite continued supply via auctions. The Fed has signaled on many occasions that it expects rates to remain low for some time. This week it was the Fed Vice Chairman Donald Kohn who said that a "large and rapid rise" in short-term rates is unlikely because of slow or no worlwide economic growth and the lack of inflation. Indeed mortgage bond yields declined to their lowest levels in 3-months and mortgage rates are expected to follow these yields down.

Treasuries showed strength this week, with Treasury bond yields staying low despite continued supply via auctions. The Fed has signaled on many occasions that it expects rates to remain low for some time. This week it was the Fed Vice Chairman Donald Kohn who said that a “large and rapid rise” in short-term rates is unlikely because of slow or no worlwide economic growth and the lack of inflation. Indeed mortgage bond yields declined to their lowest levels in 3-months and mortgage rates are expected to follow these yields down.

Still with government borrowing expected to accleerate to fund the $1.85 trillion deficit, some analysts expect rates to rise as the supply of Treasuries overwhelms demand, forcing the government to raise the rate it offers to attract more buyers. That combined with some stirrings in the economy is the only hope at the moment that rates will rise in the medium-term.

So, far the data doesn't show any significant change in the current low-rate environment. As the chart below shows, long term 5-year CD rates seem to have largely stabilized with the average according to the BestCashCow rate table stabilizing in the 3.3% APY range. Rates on other products and terms though continue to drift lower. At this point, unless there is a significant uptick in inflation or economic growth, it's hard to see any change to this dynamic. While rates have pretty much stabilized, they have stabilized at a pretty low level. And at this point, if rates are going to move, it looks like they will still move gradually down.

There's no significant change to report in the spread between savings rates and 36-month CDs. The spread ticked up a bit but nothing that isn't within the normal range of the past few months. Notice that the spread between savings and 3-year CDs that we saw widen in the spring is still there, a sign that the economy is poised for expansion. One wonders who will blink first: will longer term CD yields come down in the absence of any sign of inflation, or will short term savings and CD accounts rise as the economy strengthens?

Based on this data, it would seem that any rate increases won't come until sometime in 2010. I would stay short-term and wait. An improving economy and a glut of Treasury debt will eventually put some pressure on rates.

SavingsandCDRateAnalysis

The spread between the average BestCashCow savings rate and 36 month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.

SavingsandCDRateSpread