CD Rate Trends: August 25


You really have to climb the ladder to get any “oomph” in certificate of deposit rates this week.

The tale of the tape can be found in this week’s BankingMyWay National CD Tracker. Of the major CD categories, only five-year products are on the upswing, climbing to 2.3% from 2.24%.

That’s it for the good news, if you call a five-year CD rate of 2.3% good news. Some banks were rolling out five-year CDs with a 5% interest rate last December – a time that seems a lot longer than nine months to disappointed CD investors.

Down the ladder this week, four-year CD rates fell to 2.038% from 2.053%, while two-year CDs slid to 1.56% from 1.57%.

Meanwhile, one-year CDs backed up to 1.13% from 1.14%, and six-month products fell to 0.8% from 0.81%

If CD investors ever needed any good news, it was this week. But the Federal Reserve didn’t oblige, with the Fed’s interest rate committee declining to hike the overnight loan rate last week. The Fed hasn’t had CD investors' backs during this entire economic tsunami, refusing to raise interest rates to buck up the little guy, while pouring hundreds of billions of dollars into the big financial institutions whose hubris and mismanagement led to the steep recession the country is battling.

The Fed wasn’t the only roadblock to better rates last week. U.S. Treasury notes - the closest benchmark to bank CDs – continue to struggle. Ten-year Treasury notes had fallen by about 40 basis points from Aug. 10 to Aug. 20 (but still remain significantly higher than the stunning decline of this spring, when the 10-year note dipped below 3%).

Unfortunately, investors with big pockets couldn’t help but notice. Take China, which has been the largest buyers of U.S. debt in 2009. The Asian Tiger is starting to take a dim view of our nation’s economic health, and has reduced its U.S. Treasury portfolio by $25 billion during the last month – about 3% of its overall holdings.

That’s not exactly a vote of confidence, and if other investors follow suit, expect Treasury rates to dive. In the process, that would take CD rates down with it – as hard as it is to believe that CD rates can get any lower.

What can investors do? The best move might be to roll up your sleeves and dig around for more competitive interest rates. Focus on online banks and credit unions, and use the BankingMyWay CD Search to scrounge up the best deals.

When it comes to CD rates, nobody is out there singing “The Time of My Life” these days. But somewhere out there is a bottom, and when it’s found, there’ll be no place to go but up.

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