Dear Dr. Don,
When do you think CD rates might increase?
— Gregory Goesup

Dear Gregory,
My crystal ball is pretty cloudy on this issue. The Federal Reserve is keeping short-term interest rates low, and inflation hasn’t been much of an issue. Inflation is so low that 2011 is the second straight year that Social Security recipients won’t receive a cost-of-living increase in their monthly checks.

CD investors generally invest in short-term deposits with terms of five years or less. Using Bankrate’s Compare Rates and Rate Watch features, I came up with the following yields (annual percentage yield and Treasury security yield) for CDs and U.S. Treasury securities:

CD, saving and Treasury yields
Term APY Treasury yield
MMA/savings 1.3%
Three-month 0.86% 0.13%
Six-month 1.15% 0.16%
One-year 1.45% 0.22%
Two-year 2.25% 0.38%
Three-year 2.25%
Five-year 2.65% 1.24%

I put the Treasuries in there because you’re not going to see CD rates head higher until you see short-intermediate Treasury yields head higher. That’s not in the cards anytime soon, as long as the Fed keeps adding liquidity to the banking system.

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