CD Rate Trend Index

While the Federal Reserve seems poised to begin raising interest rates by year end, the potential for reductions in commodity prices spurred by reductions in global demand, could ease some of their inflation fears. However, with oil prices still sitting over $124 barrel, unemployment increasing, and economic stimulus checks spent, questions remain for the economy. Until commodity prices decline substantially, global inflation will remain a significant threat and until stabilization in the housing market occurs, financial institutions may continue to struggle. The continued weakness in the financial sector and the need for capital may force institutions to raise their short-term CD rates in order to gather much needed deposits. I continue to recommend that CD investors consider remaining short-term while shopping for yield, while at all times maintaining FDIC coverage. Until investors are fairly compensated for moving into longer term maturities, short term and flexible may prove most advantageous.
Kurt J. Rossi, CFP, CRPC, Independent Wealth Management, Wall, N.J.

We are in the midst of one of the heaviest months ever (July) for resets on adjustable-rate mortgages (many being subprime loans). This is important because it will trigger more than the customary number of defaults and foreclosures. Once this is behind us though, we should be closer to finding a bottom in housing (although don't expect a V-shaped recovery). We are still using broker-sold CDs, purchasing most as new issues at par (receive the same amount back at maturity as we invest) and always investing under the FDIC limit per issuer. The yields are very competitive and if an investor ladders the maturities, they are somewhat protected from big interest rate moves in either direction.
Herbert G. Hopwood, CFP, CFA, president, Hopwood Financial Services Inc., Great Falls, Va.

I think rates will pretty much stay where they are for August. The stock and bond markets will be watching the early poll reports to see which way November may swing and oil prices will most likely continue to keep everyone nervous. The Fed has other tricks in their bag I think they will use for now and leave rates alone. So my vote is that they will remain mostly flat for August.

There are some banks, like National City, that still have investment grade ratings, a lot of assets ($155 billion in this case), and a six-month yield to maturity of over 9.5 percent! You can even get a YTM of over 10 percent by extending the maturity another couple of months! Now it is not FDIC-insured, but it would take a lot for this bank to fold in just six months, especially after all that is already built into this market. We have been using some of these notes that have high coupons and low prices to compliment some of the guaranteed holdings our clients own. It seems like a reasonably safe option for the right person.
Jason Flurry, CFP, president, Legacy Partners Financial Group, Woodstock, Ga.

I believe the increasing demands for liquidity from banks will be higher than the additional supply of funds from investors, even though there is a small flight to safety, and this demand will lead to higher rates. I am still cautioning investors to stay short in their maturities as the premium for going out more than a year or two does not seem justified in light of some of the recent inflation numbers.
William Z. Suplee IV, CFA, CFP, Structured Asset Management Inc., Paoli, Pa

The best investment weary savers can make right now is in an economy-sized bottle of aspirin. This hangover is not going away any time soon.

A wise course of action should focus on one's overall financial position, rather than trying to uncover low-risk alternatives that will generate better-than-average returns. The belief that alchemy is possible if we all believe in it has proven false; so it's time to get back to a solid appreciation for fundamentals.

Spend wisely, save aggressively, consider recalibrating your financial goals and objectives, and realize that these are difficult times, healing times.

Look at it this way. This mountain road is icier than ever. It's not the time for a hungover driver to be looking to make up time. The goal is simply to make it home safe and sound.
Daniel Wishnatsky, CFP, Special Kids Financial, Phoenix

Savers should keep maturities on the short-term side or ladder maturities so that at least one CD is maturing every year. It appears that the Fed's next move will be to raise rates, but that may not be for a while.
Lauren Prince, CFP, Prince Financial Advisory, New York

Although the Fed talks tough about inflation, they are no closer to doing anything about it. Worries about the economy will keep the Fed on the sidelines and mean limited upside for CD yields.
Greg McBride, senior financial analyst, Bankrate.com

We've been seeing a slow but fairly steady upward trend in the CDs that Bankrate surveys each week. Look for this to continue despite the Fed holding short-term interest rates steady.
Laura Bruce, senior reporter, Bankrate.com