CD rates Blog

Finance Blogs » CD rates » Why CDs aren’t selling in one chart

Why CDs aren’t selling in one chart

By Claes Bell · Bankrate.com
Monday, February 13, 2012
Posted: 4 pm ET

A few weeks ago, I wrote about the multi-decade low in U.S. CD balances. As you can see in the chart below, researched by our own Chris Persaud, there's little mystery to why that is. When the Federal Reserve lowers its key federal funds rate, CD rates dive. CD investors, in turn, refuse to roll their maturing CD and instead move their money into vehicles like savings accounts, rather than lock their money in at bad rates for years to come. That makes the overall level of CD balances plummet, as CDs become about as popular as swine flu.

CD rates correlate highly with CD balances

CD rates correlate highly with CD balances

There is one bright spot, though, for CD aficionados. Consumer debt increased markedly at the end of last year, with total nonrevolving debt, which includes auto lending and other types of installment loans increasing 10.7 percent in November and 11.8 percent in December last year, the biggest such increases since February 2005.

Banks sometimes use CD balances to fuel their lending, so it's possible banks, seeing their lending operations ramp up, will start offering above-market rates to attract more deposits. You can see that with lenders like Ally, whose auto lending business has been going gangbusters in recent years. They consistently offer above-market CD rates to attract a plentiful supply of deposits, which they lend to car buyers money to buy Chevys and Chryslers at auto dealerships all across the U.S.

What do you think? Have you been investing in CDs as much as you normally would? If not, what are you investing in?

Follow me on Twitter: @ClaesBell

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
3 Comments
Ray
February 14, 2012 at 12:23 pm

I jump through hoops to earn 2.5% in rewards checking on a maximum of $25,000. This is maybe 50% of the inflation rate after tax. CD's, you must be kidding!

sandra
February 13, 2012 at 7:35 pm

The real reason people won't take the coin is because the goverment has eliminated a very important part.....
IN GOD WE TRUST