CD rates Blog

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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

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?

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