mortgage

Fed affects banks, rates, prices and jobs

Certificates of deposit
Next
Slide 7 of 10
Previous
Certificates of deposit

If you rely on interest from certificates of deposit for income, you're probably not too happy with the Fed keeping interest rates at rock bottom. "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 set by 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, a financial consultant at Charles Schwab. In the late '80s, 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.

You should seek to maximize the total return of your portfolio, not just the income. Recognize that the Fed's actions are intended to prompt you to invest in higher-yielding bonds and stocks, thereby fueling the economy. "There's an old adage, 'Don't fight the Fed,'" Mervine says. "When the Fed can keep you from earning anything in safe money, you really have to take some measured risk."


Next
Slide 7 of 10
Previous

 

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
MORTGAGE & REAL ESTATE NEWSLETTER

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.

Blog

Polyana da Costa

Home prices rise at slower pace

Home price growth has slowed significantly. Should you be concerned?  ... Read more

advertisement
Partner Center
advertisement

Connect with us