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Fed nudges CD yields
If you rely on interest from certificates of deposit for income, you're probably not happy that the Fed kept interest rates at rock bottom for so long.
"Retirees want to live on the interest on their CDs," Reese says. "The Fed determines whether they can do that or not."
CD rates largely follow the short-term interest rates that track the federal funds rate. However, Treasury yields and other macroeconomic factors can influence rates on long-term CDs.
Individuals should focus on the real rate of return on CDs, after inflation is taken into account, says Casey Mervine, vice president and a senior financial consultant at Charles Schwab. In the late 1980s, for instance, you could earn double-digit rates on CDs, but with inflation also in the double digits, your actual earnings were much lower due to the erosion of your purchasing power.
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