CD Rate Trend Index

The Fed is trying to anticipate the economy's next move and head off any significant downturn. Many of the leading indicators are still headed south, so for now I expect rates to continue down until we can see better results on the horizon. For those dependent on CD yields or fixed rates for income, the options right now are few. The best bet is probably still to ladder maturities and or look for "odd lot" offers through the financial adviser channels. The odd lot holdings will loosen up your ladder a bit, but the difference in yield is probably worth it. Other alternatives, such as conservative fixed income mutual funds with low variances in their average return are safe, but not guaranteed. Depending on your situation, a combination of both may help boost return and keep volatility to a minimum.
Jason P. Flurry, CFP, President, Legacy Partners Financial Group LLC, Woodstock, Ga.

We expect rates to continue their decline in March, although it should be slight. As low as rates are now, they can't go much lower. For the typical CD investor, rates at these levels can cause a true strain, especially for those living off the interest. We would continue to ladder from six months out to five years (where rates can be 4 percent). Also, for a small portion of a portfolio, investors may wish to consider callable CDs that mature in five to seven years. While they can be redeemed early by the bank, investors are compensated with higher rates. Some issues are yielding in the high 4 percent area or even 5 percent. Be careful, however, not to have too large a percentage of your portfolio in these instruments since they will most likely be redeemed when rates are low and there is a reinvestment problem for the investor. Also, do not pay more than par (what they will be redeemed for) in most instances.
Herbert G. Hopwood III, CFP, CFA, president, Hopwood Financial Services Inc., Great Falls, Va.

The days when investors could negotiate interest rates for short-term CDs at or above the rates offered for longer-term CDs is now past. We are moving to a more normalized yield curve, where investors are compensated for extending their maturity length -- as they should be. Currently the FOMC is working a balancing act. The economy continues to slow and chairman Ben Bernanke and his fellow Federal Reserve Board members are aggressively reducing interest rates to combat the slowdown. This will bring lower short-term rates for CDs. On the other hand, inflationary worries have kept longer-term rates relatively stable. Expect this difference in rates between long and short term issues to expand with short-term rates falling faster and further than their longer-term counterparts.
N. Barry Vosler, CFP, CRPC, AAMS, Linsco/Private Ledger, member FINRA/SIPC, LPL branch manager, DeWitt, Iowa

Here is a TIP. Not a get rich quick TIP, but an idea of how you can better cope with the current environment of falling interest rates and rising inflation.
TIPS are U.S. Treasury inflation-protected securities. According to the U.S. TreasuryDirect Web site, Treasury Inflation-Protected Securities, or TIPS, are marketable securities whose principal is adjusted by changes in the Consumer Price Index.
During periods of inflation, the principal increases and decreases during periods of deflation. TIPS pay interest on a fixed rate according to the principle amount of the bond. The interest payment will change when principle adjustments are made, thereby increasing interest payments during periods of inflation and decreasing payments during periods of deflation.
At the maturity of an individual TIPS bond, you receive the adjusted principal or the original principal, whichever is greater. This provision protects you against deflation.
TIPS can be purchased directly from the U.S. Treasury at treasurydirect.gov or through banks, brokers or dealers. Another effective way of purchasing TIPS is through an ETF, or exchange traded fund.
The IShares Lehman TIPS Bond Fund, symbol TIP, seeks to replicate the performance of Lehman Brothers U.S. Treasury TIPS Index. There are also several mutual funds that offer TIPS specific strategies. With any investment tip, make sure the recommendation makes sense for your current financial situation and always seek additional information contained in a prospectus and other disclosure material.
Edward W. Gjertsen II, CFP, Chairman, Financial Planning Association of Illinois, Vice President Mack Investment Securities Inc., Glenview, Ill.

It is our opinion that the Federal Reserve's response has consistently been ill-timed and the cuts have done little to inspire confidence in the American consumer. While consumer spending remains sluggish, we are encouraged by the positive attention that the presidential candidates are generating. Regardless of your political affiliation, when people start to feel good about the future, it translates directly into spending in the economy. As for me, my campaign button states, "It's the Consumer, Stupid!"
While we are not calling a hard bottom on rates at this time, we certainly think the end is near. We suggest that staying short for the next six months.
Martin Mesecke, CFP, CLTC, Self Worth Financial Planning LLC, Plano, Texas

Savers have two issues to contend with -- an active Fed that is cutting interest rates and building inflation pressures. Be wary of taking on unwanted risk in the pursuit of yield.
Greg McBride, senior financial analyst, Bankrate.com

While we should continue to see rates drop, it appears that the declines will be less severe than they have been the past few weeks. That said, if the economic picture doesn't show some bright spots before the March 18 Fed meeting, we could be in for a 50 basis point cut or more.
Laura Bruce, senior reporter, Bankrate.com