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Update - 07/03/09
In June, the bond market pushed yields up to yearly highs for most terms. The 10-year treasury jumped above 4%. It has since fallen back to 3.50%. The higher rates gave many concern that the housing recovery would be further delayed. With the 10-year back down, that worry seems to be diminishing. However, today the unemployment rate continued to sneak up to 10%. I believe the state of California's is around 12%.
In addition, commodities began to increase, especially oil. As a result, gas prices rose to around $2.50 per gallon. In California, they have increased to 2.95%. Good ol' California.
Earlier in the week, CA got permission to put even tougher emission standards on the books. That is not going to help CAs recovery.
Although the Fed continues to keep Fed Funds between 0% and 0.25%, the bond movement did put some pressure on CD rates.
For 1-year CD rates we saw an average increase of about 0.15%. On 5-year CDs, the increase was even larger, around 0.25%, and we saw a high of 4.00%.
One bank even offered a 10-year at 5.10%. In another article, (Why Buy a 10-year CD) I discussed when it might make sense to open a 10-year CD. That certainly fit some of the criteria.
The economic news that has come out over the last few days has not been good. As a result, most feel the low Fed Funds rates will be around for some time and we've seen CD rates retreating again. Especially for terms of 2-years or less. But, even some of the longer-rates had fallen. One credit union had a 4.0% 5-year CD for about 3-months. For July, the rate dropped to 3.50%. At some point, the Fed will have to reverse course and begin raising rates. I'm guessing that will be in six to nine months. I'm also betting that a fear of stalling a recovery at that point, will have them increasing rates quite slowly.
Some of the larger banks that received TARP funds have been making requests to pay them back. Would you believe, they don't want the Government looking over their shoulders? Although, I'm a fan of low regulation, I think they need some serious watching over. It really doesn't seem like the banks have learned anything, except that the Big O will bail them out.
Update - 05/14/08
Fed Funds now stands at 2.00% and will probably remain at this level for a while. The latest drop really wasn't
necesssary, but I guess they felt the need to give into the markets. Inflation is rearing its head and the Fed needs to
keep a close watch on this. The housing market isn't out of the woods, though either. More loan rates are set to increase in the latter part of 2008 and 2009.
Many more homes could end up being foreclosed and this certainly won't help the economy. At least we finally have a nice yield curve.
Short-term rates are around 3.00% to 3.20%, but longer-term is 4.00% to 5.00% and there has been some nice
10-year yields out there. One bank has had a 5.50%. Stocks are trying to stage a comeback. The DOW is very close to 13,000 as I write.
Update - 02/01/08
What a few months it has been. Back in October the Dow was charging ahead, reaching as high as 14,500. CD
rates were in the 5.00%'s. Since then the Fed has lowered rates 1.75%. The Dow is up and down around the 12,500 mark and
CD rates are in the 3.00% - 4.00% range. The 2Y treasury is in the low 2.00% range and has briefly gone below.
Some believe the Fed may need to lower rates even further. Today the average Job less report had a loss of 17K.
This was much lower than expected. Also previous reports were amended showing lower numbers as well. If you don't
have a ladder set-up, a 2Y - 3Y max term may offer the best protection for lower and then raising rates.
Update - 01/25/08
As most know by now, the FOMC lowered rates an almost unprecedented 75 Basis points (.75%) on Tuesday,
January 22. It sent shock waves through the CD world, and the highest rates came tumbling down (as well as
the lowest). We are now bracing for another potential 50 Basis points next week. On our blog I posted
some history on the Fed Funds Rate.
Although some credit unions have kept their rates in the mid 4.00% range, most banks have lowered rates
below 4.00%. If the Fed does lower rates next week, the 4.00% will probably go by the way side.
Only time well tell if they will be a distant memory or this low rate environment will be just a blip.
My new line is "Greed + Stupidity in a Capitalistic Market = Meltdowns". Unless those people that purchased homes,
cars, boats, etc. they shouldn't
have and the brokers packaged and sold investment vehicles with "irrational exuberance" learn, we will be
here again.
Update - 12/17/07
The FOMC lowered rates on 12/11. The Fed Funds rate is now at 4.25%, it stood at 5.25% before the FOMC began
lowering rates in August. On average we've seen rates drop about 15 Basis Points, but there are still some straggles
out there. Our best 10-year is still sitting at 5.71% APY. The 7-year actually came up quite a bit to 5.45% APY. It was
5.25%. The 1-year is down to a 5.15% APY. It was a 5.25%. Most believe the Fed will need to lower rates further.
Update - 11/15/07
The FOMC lowered rates on 10/31. The overnight rate sits at 4.50%. Will it go lower? Many believe it will
to stave off the slowing economy. Many also believe if they go lower, they will have to go up even further to
stave off inflation. We don't have all of the answers. We just have historical rates that give us
a picture into rate cycles. They come up, they come down, they come up and so. Our 10-year rate dropped to 5.55% APR / 5.71% APY.
Update - 10/23/07
The Treasury yields have dropped as much as 40 Basis Points over the last week and a half. This has
been bringing CD rates down. Most people feel the Fed will lower rates again, probably to 4.50%.
This will most likely bring rates down below 5%. As average rates have ranged from 4.81% on 1Y to 5Y at
5.41%, I would look to pick-up rates in those ranges. If you have a lot of funds coming do over the next
year or two, look to extend a little bit. If you have a nice ladder, don't fear doing some long-term CDs. There is
a nice 10-year at 5.80% APR / 5.97% APY.
Update - 8/21/07
The treasury market has been flooded with money as people flee to quality and fixed investments. The 2-year treasury actually
got below 4.00% at one point (about a month ago it was over 5.00%). As the markets are now anticipating a rate cut, many banks and credit unions have been lowering
their rates. Big banks such as IndyMac, Countrywide, Washington Mutual, etc. have been offering higher rates on the shorter-term
CDs. This is primarily because they have been stuck holding many loans they were planning on selling into the market. Also, fears have
caused many people to remove their uninsured deposits and even remove the insured portion. Countrywide has been offering a 5.75% APY for a 1-year CD.
Most other banks have lowered rates 10 - 20 Basis Points (0.10 - 0.20%).
Update - 6/29/07
What are the current highest CD rates? Are we in an upturn, downturn, or just coasting
along? Investment rates throughout the spectrum of opportunities have never been so volatile.
What are the causes? Are there any solutions? How will the highest CD rates respond?
All very good questions. Let's take them one at a time. First, where are we now? CD rates are basically still flat across all terms. We have seen a little premium being offered on the longer-term versus the shorter term, but not much. The highest rates we have seen this year are a 6.30% for a 15-month term in May and a 6.20% in March for a 2-year term. Keep in mind that those were specials that didn't last long.
The average range we have seen this year is between 5.25% - 5.50% across all terms. We are currently a little above that with 1-year rates around 5.55% and 5-year rates around 5.65%. Since January, each time the FOMC has kept the overnight rate at 5.25%, rates have edged lower with some 2-year to 5-year CDs slipping to as low as 5.15%. Over these last few weeks inflation scares have kicked back in and treasury yields climbed. As the anxiety has hung around a bit, CD rates have climbed. So we are currently in an upturn.
I don't believe the current levels will hold. I believe the inflation readings that the FOMC uses will remain tame, they will hold rates, and the rates will edge back down to the 5.25% to 5.50% range. Most likely, the highest rates will return to being on the 6-month and 1-year terms. If the FOMC raises rates, they will surely crush whatever chance housing has at a recovery. If they lower rates, the economy and housing will get a boost, but they fear the buy-out / merger mania spinning out of control.
Of course, since we are part of the global economy these days, we are affected by what goes on in the world. As inflation has heated up in other parts of the world those countries have raised their rates. As a result, some investors (and some very big ones) have begun to move some of their money elsewhere. If this move grows, our country will be forced to raise rates to remain competitive.
My solution has continued to be the same. When it comes to CD investing, build a laddered portfolio. Keep some funds in cash instruments for emergencies. If you are young and can whether some storms, find a good money manager (we even know of a few :O) ) and invest in some products that meet your risk profile. And of course keep funds in safe, secure, insured CDs and call us for the highest cd rates.
We will continue to keep you up to date with our blog and our compare cd rates page.
Is your bank or credit union federally insured? Is the amount you are investing completely protected? Use the tools that the FDIC and NCUA provide espcially the Insurance Limit Estimator