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Fed move a hard knock for CD rates

Fed move tough on CD rates
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The Web is a risky place

If you heard a faint sigh last Wednesday around 12:15, you may have recognized the sound of savers' faint hopes being deflated.

The pinprick to the proverbial balloon was delivered by Ben Bernanke, chairman of the Federal Reserve, announcing that current economic conditions could warrant exceptionally low interest rates until late 2014.

The result of the central bank's low interest rate policy will be lower rates for CDs, or certificates of deposit, says Dan Geller, executive vice president of Market Rates Insight, a pricing consultant to banks in San Anselmo, Calif.

"The Fed does not see substantial recovery happening very soon. That means that lending, especially mortgages, is not going to increase in the near future and demand for lending is going to remain soft," he says.

In order for banks to attract loans, they need to price them attractively which means lowering interest rates. If banks earn less from loans, the amount they are willing to pay on deposits, including CDs, also must decrease.

With a typical one-year CD yielding about 0.34 percent as of last Wednesday and a steady downward trend, CD rates amounting to a handful of basis points or less are not too far away.


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Product Rate Change Last week
1 Year CD 0.90%  0.02 0.88%
2 Year CD 1.03%  0.00 1.03%
5 Year CD 1.59%  0.01 1.60%
 
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