CD Rate Trend Index

Well, what a month! Government intervention in its glory! The bailout package is not the solution to all of our economic woes but certainly without it, the situation would be dire. The issues that are facing the US economy also are present in the global economy. There's an incredible flight to safety being demonstrated by the very low yields being paid on the three- and six-month T-Bills. So what does all this mean to the CD investor? Unfortunately, we need to cut back our expectations for rate rises. Yes, we still have the banks that will need to raise deposits to prop up their capitalization levels and they will be competing with higher interest rates. But these banks could very well be the ones on the FDIC watch list as well, so always bear that in mind when making decisions. The flip side of the coin though is that many banks have taken in huge amounts of deposits as dollars leave the brokerage houses because the investor is selling not only their mutual fund investments but also the (once thought safe) money market fund. When major money market funds "broke the buck" -- dollars headed for the protection of FDIC. What does this mean? This means that fewer banks will be competing aggressively for the CD dollar with higher interest rates. So this is one of the reasons why CD rates/yields are likely to remain unchanged. But an even bigger reason is because banks in general are very skittish to loan money to the business market and the consumer because the risk levels in our current environment are very unstable. So if you're a bank and you don't want to loan money out because of the risk -- you obviously aren't motivated to compete for CD deposits. Once again, a downward pressure on CD yields is created. So at the end of the day, we have a counterbalance occurring, some banks who want money and some banks that don’t. Hence the reason for CD yields to remain unchanged. If you want a higher return, a possible alternative you should investigate is traditional fixed annuities.
Michelle Ford, CFP, vice president, Vantage Point Financial Services Fort Washington, Pa.

In these very uncertain times, banks will need to offer rates that attract deposits. As long as rates are semi competitive and FDIC insured, however, they will most likely be able to keep rates where they are and gain these deposits.
Herbert G. Hopwood, CFP, CFA, president, Hopwood Financial Services Inc., Great Falls, Va.

With little conviction, I would expect rates to trend slightly lower in the month of October. As we sit here at the end of September, the markets are reeling. We have seen some of the largest financial institutions in the country fail or grasp on to a government offered life-line. Much has changed over the past few weeks and the process we must go through to clean up the mess has, unfortunately, fallen on our legislature. The details that arise from their solution or solutions will determine the length of this work out. Again, I anticipate a plan will be agreed upon and interest rates will respond to the initial news by shifting lower. Long-term it is much cloudier. If you have a developed fixed income ladder – stick to your plan and continue to re-new your CDs to the end of the maturity ladder and leave the emotions out of our investment decisions. Remember, it is times like these that the discipline of staying true to your design will prove most fruitful and less stressful. On the other hand, those without a clear fixed income structure, keep maturities short. See what type of tax payer obligation we may be left with and look to create your laddered portfolio as this storm passes – and it will.
Barry Vosler, CFP, Linsco/Private Ledger, Dewitt, Iowa

Wow, what a bruising two weeks it's been!! And would you believe that a week ago Monday when the fun began I started teaching my short course to "seasoned adults" entitled "Investment Asset Allocation in Uncertain Times." I thought of that name six months ago when the Osher Lifelong Learning Institute at the University of Virginia asked me to do a course for seniors. My bones were telling me the rubber band around the credit market was nearing its breaking point. It's been exciting, to say the least, with lesson plan revisions galore. I think all the PowerPoint slides for next week's session will simply say "to be determined." David Rosenberg, the chief Merrill Lynch economist, said the durable goods data "confirms that industry is finally cracking under the weight of weakening overseas demand, a strong dollar and the financial crisis that threatens to choke off the US economic engine." The Commerce Department reported that new orders for durable goods fell 4.5 percent in August. Secretary Paulson's talk about "quick money now" and "give me a ($700 billion dollar) bazooka" and the President's saying "our entire economy is in danger" and that we're in for a "long and painful recession" to the nation are terribly frightening, especially to retirees on fixed-incomes. People very simply (1) don't have much in the way of liquid assets to begin with; (2) can't get credit as easily as they could six months ago; (3) are maxed out on credit cards so they're keeping their wallets/purses closed and staying home. The current situation could prompt Mr. Bernanke to lower rates by as much as 50 basis points very soon. Inflation threats predicted by various seers are becoming (temporarily) dormant as the credit crunch become crunchier!
Thomas Grzymala, CFP, AIFA Principal Forensic Analytics LLC, Keswick, Va.

Until the dust settles on our financial crisis and governmental intervention, remain cautious! I've recommended that my clients maintain a larger percentage of their investable assets in money market accounts and short-term CDs. Maximize FDIC coverage! I do not expect our economy to recover until the 3rd or 4th quarter of 2009 -- this should keep interest rates low for the immediate future. Minimal GDP growth is expected, unemployment rates are increasing and the housing market will need 12 to 24 months to work through the crisis. Opportunities to enter or re-enter the equity markets will present themselves over the next few quarters. Incrementally "buying through the bottom" will help take the guess work out of predicting a market low. In closing, utilize caution and make sure your decisions are consistent with your risk tolerance and long-term financial needs.
Steven J. Lautenschlager, CFP, vice president, First Business Trust & Investments, Appleton, Wis.

The looming prospect of an inflationary cycle will cause rates to increase.
Jason Flurry, CFP, president Legacy Partners Financial Group, Woodstock, Ga.

While this is highly dependent on what actions are taken by the Congress and the Fed in response to the financial turmoil, it appears that banks are offering higher CD rates as they search for additional liquidity to improve their balance sheets. With the flight to quality, I believe many banks will have to increase yields to attract new liabilities.
William Z. Suplee IV, CFA, CFP, Structured Asset Management Inc., Paoli, Pa.

The sharp downward movement in Treasury yields and the possibility of a Fed rate cut will rob momentum from CD yields. Expect a pullback until a rescue package is settled upon.
Greg McBride, senior financial analyst, Bankrate.com

Bankrate's weekly national CD surveys are showing a slow erosion of CD yields across all maturities. Your best bet is with high-yield CD offers.
Laura Bruce, senior reporter, Bankrate.com