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CDs versus bank accounts

By Allison Ross ·
Thursday, March 6, 2014
Posted: 3 pm ET

In recent years, consumers have been shifting their savings out of certificates of deposits and into more liquid accounts like savings and checking accounts.

That decision has led to lost interest income, says Dan Geller, executive vice president of Market Rates Insight.

From December 2007 -- when the Great Recession started -- until December 2013, liquid accounts earned an average annual return of 0.62 percent, Geller's research showed. By comparison, term accounts like CDs yielded a yearly average of 1.39 percent during each of those six years.

"Consumers lost interest income on their bank deposits because they made an intuitive rather than analytical financial decision to shift deposits (to liquid accounts)," Geller says in a statement.

Most deposits right now are in liquid accounts, as the popularity of CDs has nosedived along with their rates.

Some people might have moved their money because they thought it was not worth locking up their money for a specific amount of time, given the low CD rates. Indeed, Bankrate has written about how locking up money might not always be the right choice for a consumer, especially in a low interest rate environment.

Some of the shift from CDs to more liquid accounts also may have to do with people, nervous about the economy, opting to keep more money liquid in case of an emergency, Geller says. He says it's natural that consumers hoard "mattress money" during times of high money anxiety.

Did you shift your deposits out of term accounts and into liquid accounts? Do you think the difference in interest rates a big deal?

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