Even as the rest of America is gradually abandoning CDs, seniors have increased their holdings, according to a new study from the Federal Reserve.
As you may have heard, the Fed recently released its 2010 Survey of Consumer Finances, and it doesn't look good. Apparently, the median American's net worth declined by nearly 40 percent between 2007 and 2010. That decline came primarily because of falling real estate value, but the decline spread across many asset classes, including stocks and mutual funds.
What's interesting is that Americans' CD balances also fell. The median American household held $21,000 worth of CDs in 2007; in 2010, it held $20,000. That's a decrease of nearly 5 percent.
So why the drop? After all, CDs are FDIC-insured, unlike real estate or stock. From the study:
Over the 2007-10 period, the attractiveness of CDs was subjected to competing forces, two of which seem particularly powerful. Increased volatility in stock and bond markets made CDs more attractive relative to those investments as a haven from risk, but the convergence of yields on all relatively safe assets at a level near zero implied that the advantage CDs typically hold over transaction accounts was greatly reduced.
In other words, it's the CD rates, stupid.
Still, among seniors, stock volatility must have trumped low rates. In households headed by a person aged 65-74, average CD holdings increased from $24,400 to $25,000. Among those with heads of household 75 or older, the increase was even sharper, with median amount held in CDs rising from $31,400 to $32,200.
The wealthy also stayed loyal to CDs despite piddling rates. The median amount of money held in CDs by those in the 90th -100th percentile of net worth increased from $52,400 to $65,000.
Here's a link to the Fed survey, in case you want to check it out.
What do you think? Have you stayed loyal to CDs? If so, why?
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