Low CD rates leave laddering shaky

That problem is compounded by sluggish loan demand in many areas of the economy, which means banks don't need as much in the way of deposits, and so don't need to pay high interest rates to attract them.

Put another way, if demand for bread fell by half tomorrow and bakers had to cut their prices by 50 percent, what would you expect to happen to the price of wheat? As the suppliers of the "raw material" for loans, CD investors face a similar situation.

Add to that the Fed's decision to keep the federal funds rate near zero, and you have a recipe for historically low CD rates, Geller says. Loan demand and loan interest rates are a bigger factor than the federal funds rate because the federal funds rate is a very short-term rate and CDs are longer.

What to do about it

Estimates of how long the low-rate environment will last vary.

For his part, Geller doesn't see rates going anywhere until at least the fourth quarter of 2014, when the Fed has tentatively projected it will begin raising the federal funds rate.

Antenucci says it will likely take even longer for CD rates, which closely follow the movement of Treasury rates, to return to anywhere near previous heights. In the decade following the end of World War II, the rate on the 10-year Treasury generally stayed between 2 percent and 3 percent.

"We think there's a good chance that we could experience a similar situation where rates are low for a long period of time," Antenucci says.

In the meantime, investors, wondering what to do with money from maturing laddered CDs, have a number of options. They could earn higher yields by moving into riskier assets, such as corporate bonds or equities, but those investments don't carry CDs' "full faith and credit of the U.S. government" guarantee.

For investors who want to stick with CDs, one way to increase yields is shopping around, Antenucci says. "If people are in banks right now and they're being offered 0.3 percent, shop it around."

Indeed, the highest rates in Bankrate's five-year CD rate database top 1.7 percent, a full percent above the average rate and enough to offset inflation, which is currently running at 1.4 percent annually, according to the Bureau of Labor Statistics.

Geller says those sticking with CD laddering may want to keep their ladder fairly short in case rates do recover. If you do decide to go longer to capture higher rates, it might make sense to opt for CDs offered by some banks that allow investors to "bump up" to a higher yield if overall interest rates rise.

Or investors could look at CDs that base their rates on the returns of a specific stock index to get "some kind of protection on the upside," Geller says.

Antenucci says above all, be careful to avoid making rash decisions that will lock you into today's low rates in search of a few extra basis points of yield.

"Beware the bank branch broker trying to sell you an annuity that's paying a slightly higher rate," he says, referring to an instrument with a continuing payment with a fixed total annual amount. "It may end up being tough for you to get your money out."


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