CD Rate Trend Index
Will CD rates rise, fall or remain relatively unchanged? Experts and Bankrate analysts provide their insights. Search high-yielding CD and money market accounts.
It's been a long haul for CD investors. While the down side seems to be easing, it looks as though true upside is a ways off.
Industry experts and Bankrate commentary
We believe that the economic numbers will continue to show that the economy is improving (although slowly). This will start to put pressure on interest rates, especially on longer maturities. One area of concern, however, is the appetite for risk that is creeping back into the stock and bond markets. Of particular interest for bond and CD investors is the large decline in yields on investment-grade (safer) corporate bonds. In the fall, albeit at a very difficult time, we were able to lock in yields of 7 percent to 8 percent on very high quality corporate bonds in the five- to 10-year maturity range. We are now seeing yields of 4 percent to 5 percent today on the same bonds. While the yields in the fall may have priced in too much risk and were a bargain, many of the issues today are perhaps not pricing in enough risk.
Herbert G. Hopwood, CFP, CFA, president, Hopwood Financial Services Inc., Great Falls, Va.
There seem to be a lot of folks worried about September since it has been a difficult month for the financial markets in recent years. I expect rates to sit tight until we see what this year looks like. If the worst appears to truly be in the rear view mirror, then watch for inflation signals to serve as a catalyst for higher rates later in the year. If not, rates will most likely stay the same until further notice.
Jason P. Flurry, CFP, president, Legacy Partners Financial Group LLC, Woodstock, Ga.
Interest rates will likely remain low for some time. In response to the economic and market turmoil we have experienced over the last year, banks are flush with cash and reluctant to lend to anyone other than the highest quality borrowers. Under these circumstances, banks have no incentive nor need to offer higher interest rates to attract deposit dollars. Access to money is cheap, the economy is moving at a snail's pace, and drivers to inflationary worries have not appeared, as of yet. Look to short and midterm maturities.
N. Barry Vosler, CFP, CRPC, AAMS, Linsco / Private Ledger, Dewitt, Iowa
CD fans, stay put until end of 2009.
Lauren Prince, CFP, CDFA,CFS, CLTC, Prince Financial Advisory, New York
The latest economic data seems to suggest that we are experiencing healing and improvement in the financial markets but nothing near recovery. Instead investors should realize that we are heading down a difficult road toward stabilization and the new normal, which consists of higher long term unemployment rates coupled with lower economic growth.
The recent rally in the equity and corporate bond markets presents a second chance to investors who still remain too aggressive given their goals and objectives. In fact, the equity rally over just the past few months has been significantly greater than the market's performance over the last 10 years.
Investors should take this opportunity to rebalance toward more appropriate allocations, taking risk off the table where appropriate. This is very important since a prerally portfolio consisting of 40 percent equities and 60 percent fixed income/cash could now have over 50 percent in equities, 10 percent more than the initial target. This rebalancing can help to soften the blow that may be dealt by increases in consumer, corporate and municipal defaults, continued commercial and residential real estate weakness, and the market's realization that it may have been defying gravity in recent months.
Kurt J. Rossi, CFP, CRPC, Independent Wealth Management, Wall, N.J.
Most market observers are scratching their heads over what has transpired during the last several weeks. The typical correlations between interest rates, equities and commodities have been anything but normal. Bond prices and equity prices have risen in almost lock step along with most commodity prices. The flight from or to quality in the bond market usually precipitates advances or declines in the broad equity markets. Yet this time, dare I write it, appears different. Nearly all markets are still recovering from the hangover of the wild swings that enveloped the world 12-months ago. With most major domestic equity markets up 50 percent plus from the March 2009 lows, traders and investors are not quite sure what the next 12 months may have in store. This uncertainty will keep bonds and stock range bound over the short-term (two to four months).
The next bit of prognostication may be of more interest. There is a growing probability that U.S. and world economic conditions will deteriorate through the first quarter of 2010 resulting in the dreaded double dip recession similar to that of the early 1980’s. Those baby boom investors who have been thrice bitten (tech bubble bust, recent Stock market bust and housing market bust) are not looking at ramping up their risk appetite anytime soon. Their savings rate, on a relative basis, has risen dramatically as they try to repair their fragile personal balance sheets. The famed “wealth effect” is in reverse gear. The expected relief spending binge (cash for clunkers and other incentive programs) will soon fade and economic reality will set back in. Interest rates over the next several months will remain relatively steady but may start to decline through the end of the 2nd quarter 2010. Duration on CD’s, notes and bonds could start to be extended out to two to five years to take advantage of these falling rates.
And now, a little caveat. The level of the U.S. Dollar is a prominent indicator of the world’s faith in capitalism. Should the dollar decline precipitously, all bets are off. This would be the most disastrous of events as world market participants lose faith in the “In God We Trust” aspect of our currency. Interest rates and dollar denominated commodities would rise sharply. This would slice off any “green shoots” at their most vulnerable stage stifling any recent economic rebound. So keep one eye on the greenback and one on future expectations of consumers. A steady dollar and steady consumer is what we need to keep things moving in the right direction.
Edward W. Gjertsen II, CFP, vice president, Mack Investment Securities Inc., Glenview, Ill.
Yields on the longest maturities are getting up off the mat, but not enough to be compelling. For shorter maturities, yields haven't hit the bottom just yet.
Greg McBride, CFA, senior financial analyst, Bankrate.com
Bankrate surveys show longer-term maturities edging upward but the yields still aren't worth tying up funds. Check high-yield CDs
for significantly better returns.
Laura Bruce, senior reporter, Bankrate.com
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About the Bankrate.com Rate Trend Index
Bankrate.com surveys experts in the financial planning, banking and mortgage industries to gauge whether certificate of deposit and mortgage rates will rise, fall or remain relatively unchanged. The deposit index panel consists of financial planners and representatives of institutions that offer FDIC-insured CDs to the consumer. The mortgage index panel consists of mortgage banks, mortgage brokers and other industry experts who are actively engaged in providing residential first mortgages to the consumer. Results from the CD Rate Trend Index are released monthly. Results from the Mortgage Trend Index are released each week.