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CD buyers may not feel like winners when the Federal Reserve’s key short-term interest rate is sitting at 2 percent, but at least the Fed isn’t still cutting rates.
The Fed has been caught between a sagging economy and sharply rising food and energy costs. Hiking short-term rates might check inflation, but it would also raise the cost of borrowing while so many individuals and businesses are struggling — and it would be an extraordinarily unpopular move.
Depositors, of course, want to see the Fed raise rates — heck, it’s a hedge against inflation. But while a Fed action would move CD rates up faster, it’s not entirely necessary at a time like this, when many banks are trying to grow deposits.
Slowly, rates have been rising since May without any help from the Fed. Take a look at the following chart that shows average monthly yields as surveyed by Bankrate.
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| CD Yields |
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| Date |
6-month (%) |
1-year (%) |
5-year (%) |
| 1/08 |
3.20 |
3.24 |
3.51 |
| 2/08 |
2.54 |
2.46 |
2.89 |
| 3/08 |
2.23 |
2.21 |
2.89 |
| 4/08 |
1.85 |
1.94 |
2.76 |
| 5/08 |
1.86 |
2.07 |
2.96 |
| 6/08 |
1.88 |
2.19 |
3.24 |
| 7/08 |
1.96 |
2.29 |
3.43 |
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Those yields are improving, but they’re still awfully low when inflation is running in the neighborhood of 4 percent — and some say considerably more than that.
Bankrate’s
high yield database has six-month and one-year CDs in the 3 percent to 4 percent range; five-year CDs are paying 4 percent to 5 percent — but it probably isn’t wise to go that far out.
“Most of what I’m buying for clients is in the one- to three-year range,” says Steve Juetten, of Juetten Personal Financial Planning, in Bellevue, Wash. “But people should have a variety of investment vehicles. Don’t just rely on three-month or six-month CDs.”
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