CD Rate Trend Index

There's no doubt that banks will be increasing rates and we have already seen the CD rate increases occurring. I do strongly recommend all the CD shoppers out there stick to the short side. Even though a five-year CD rate may sound a hell of a lot better than the 12-month rate, don't be tempted. If you do lock in, I feel you will be destined for disappointment. Inflation is increasing -- it's everywhere! It doesn't matter whether you look at headline inflation, core inflation, wholesale inflation or just plain and simple inflation -- your grocery bill. Yes it's true oil has come down from its highs, but $118 barrel of oil isn't cheap. It may be cheaper than $150, but don't count your chickens yet -- there are many pundits that believe it's going back up. So what does all this mean? Well, this means that even though the Federal Reserve Bank is trying very hard to walk its tightrope between a slowing economy (both domestically and globally) and rising inflation, it will be switching its footing. The Fed will be raising rates. So with the Fed poised for a rate rise and the aggressive competition for deposit dollars because of the "need" for many banks to raise additional capital, don't lock into a long-term CD. Rates have nowhere to go but up! Also let's talk about the "need" for banks to raise capital. Being a CD shopper -- you need to be looking for not just a good rate but also who is the rate coming from? There are 117 banks on the FDIC watch list. Yes there is FDIC insurance, but there are limits to the coverage. At the end of the day, who wants to rely on FDIC to get YOUR money back? Beware, be prudent and by the way, investigate options other than just CDs if you have five years or more till you need your money. You can receive principal protection elsewhere.
Michelle Ford, CFP, vice president, Vantage Point Financial Services Fort Washington, Pa.

I anticipate rates will creep higher over the next year or so, but not at a pace that would warrant sitting on the sidelines with cash and waiting for higher interest. Put your fixed income money to work in short-term high quality investments like CDs or municipal bonds for those in a higher tax bracket. Look for inflation worries to subside slightly and the economy to show early signs of regaining moderate growth. These two contradictory forces should keep the income markets confused enough to not commit to driving rates too far in either direction.
Barry Vosler, CFP, Linsco/Private Ledger, Dewitt, Iowa

If we hope to stifle the inflation that the dollar's printing presses have virtually guaranteed, interest rates must go up. Or shall we be like Japan? Our country's financial morass will not get better until housing finds the bottom and reverses. Meanwhile, the Fed and Hank Paulson have to tighten up credit now, and they understand this!
Thomas Grzymala, CFP, AIFA Principal Forensic Analytics LLC, Keswick, Va.

Though the Treasury market is showing strength, which would normally suggest lower CD rates ahead, banks are feeling the pressure of the credit squeeze. It is highly likely that as more banks end up on the (FDIC) watch list and consumers become even more nervous about possible bank failures, competitive pressure will force banking institutions to raise their rates to attract depositors. Although the reason for this rising rate scenario is not good for the overall economy, depositors should not look this particular gift horse in the mouth.
Michael Kresh, CFP, M.D. Kresh Financial Services, Islandia, N.Y.

The looming prospect of an inflationary cycle will cause rates to increase.
Benjamin Tobias, CFP Tobias Financial Advisors Plantation, Fla.

Institutions are increasingly offering higher CD rates as they search for more liquidity to help their balance sheets as a response to the continuing liquidity crunch.
William Z. Suplee IV, CFA, CFP, Structured Asset Management Inc., Paoli, Pa.

Banks are thirsty for deposits but with the Fed on the sidelines, that will rob some of the upward momentum from CD yields.
Greg McBride, senior financial analyst, Bankrate.com

The yield trend will be upward but the progress may be slow.
Laura Bruce, senior reporter, Bankrate.com