Can you hear it? It’s very faint, but the Fed is definitely whispering that it’s getting ready to announce a hike in short-term interest rates. Long-term CD yields have already begun clawing their way out of the abyss. But an announcement from Federal Reserve chairman Alan Greenspan and his gang will be the single biggest boost to certificate of deposit yields across the board. Long-suffering fixed-income investors may finally get a return that beats inflation.
Short-term CD rates, those less than one year in duration, have remained stagnant, with the average three-month CD yielding 0.82 percent, and six-month CDs, 0.95 percent.
One-year CDs are yielding, on average, 1.19 percent, up from 1.10 a month ago. The national average for five-year CDs stands at 3.13 percent vs. 2.89 percent last month.
Money market accounts are holding at 0.46 percent, according to the latest Bankrate.com survey.
Money market funds have held steady; the average annual yield for taxable funds is 0.51 percent, according to iMoneyNet.
Best moves now:
Despite the low rates, you should keep your emergency fund invested in money markets or short-term CDs — with maturities that are appropriate for how quickly you might need the money in an emergency.
Even fixed-income money that you can afford to invest for a longer period of time probably shouldn’t be invested in a CD that’s longer than three months.
It’s especially critical to not be locked into a low-rate CD at this time. Experts are betting there is a 100 percent chance that the Fed will raise rates by August. While it may take a bit for CDs to catch up, you will likely be rewarded for your patience with considerably higher rates than are available now.