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CD rates higher at credit unions

By Sheyna Steiner ·
Wednesday, August 24, 2011
Posted: 11 am ET

I've said it here before and here it is again: in the hunt for yield, CD investors should consider credit unions.

Credit unions are generally thought to be more consumer-friendly than most big banks and a new survey from TheStreet confirms it. According to the July Credit Power Index, on the basis of national averages, CD rates at credit unions were 55 percent higher than those at banks.

The index for July found that the average rate on a one-year CD at credit unions was 0.73 percent.

CD investors have had to fight for every basis point of yield in the past two years and that trend could intensify if the economy degrades or stagnates.

Short-term CD rates are directly influenced by movements in short-term interest rates as set by the Federal Reserve. At the last meeting of the Federal Reserve's rate setting committee, the Federal Open Market Committee, it was announced that the central bank would keep the federal funds rate targeted at 0 percent for 2 years.

But, there is speculation that economic conditions could warrant further action from the central bank. One step that may be on the table is extending the maturity of the Fed's portfolio of securities.

Specifically by reinvesting proceeds from maturing securities into longer-dated securities, the Fed could put downward pressure on long-term interest rates in hopes of spurring more long-term borrowing.

Lower long-term borrowing costs for businesses and consumers would mean lower rates on CDs and savings accounts. If banks aren't making money from loans, they can't pay much for deposits.

Fed chairman Ben Bernanke is scheduled to speak about the future prospects of the U.S. economy at the annual economic symposium in Jackson Hole, WY., this Friday and could offer some clues to monetary policy going forward.

Last year's Jackson Hole speech famously unveiled plans for QE2 and this year's economic turbulence has the world waiting for the speech with baited breath.

Regardless of the content of the speech, decent yields will continue to be hard to come by. Bankrate has some resources for CD investors hunting for rates.

To search for a highly ranked credit union in your area use the Safe & Sound Star Ratings.

And use Bankrate's CD rate tables to find the highest yields available nationally or locally.

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