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CD balances hit 30-year low

By Claes Bell · Bankrate.com
Monday, May 14, 2012
Posted: 5 pm ET

It's ugly out there in the CD market.

Federal Reserve data show the total amount of money in U.S. CDs at the end of last month was $713.2 billion. That may sound like a lot, but the last time there was less money in Americans' CD accounts was November 1980.

To give you some perspective on that, in November 1980, people were excited when the Dow Jones Industrial Average briefly touched 1,000. Sears Roebuck and Co., Eastman Kodak and Woolworth were still big hitters in that index.

So why are investors staying away from CDs? Obviously, the fact that CD rates are at a record low is the primary factor; there's little to love about a one-year CD paying the national average of 0.33 percent.

But banks may also be less aggressive about marketing CDs than they once were. I interviewed Hank Israel, a banking consultant with management consulting firm Novantas, for Bankrate's high-yield checking study, and he said that basically, banks have little incentive to sweeten the pot for CD investors because banks often consider CDs to be "hot money" that will leave the bank as soon as there's a better rate somewhere else.

I think part of that phenomenon is attributable to the rise of the Internet. In an age when searching for a new CD takes just a few seconds, banks are understandably reluctant to throw money at customers who may be there one day and gone the next.

What do you think? Have CD investors become less loyal? Do you notice banks being less proactive in selling CDs to you?

Follow me on Twitter: @ClaesBell.

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