bank rates

CD Rates Hold Their Own This Week

Bankaholic.comThe precipitous decline in CD rates slowed over the past week, raising hopes that maybe, just maybe, they’ve bottomed out.

Bankrate’s weekly survey of large banks and thrifts taken June 17 found the average annual yield for a:

Three-month CD slid to 0.60% from 0.62% the previous week. That’s the lowest average since Bankrate began tracking 3-month CD rates in March 1989.

Six-month CD fell to 0.89% from 0.91% — the lowest average since Bankrate began tracking 6-month CD rates in January 1984.

One-year CD increased to 1.19% from 1.17% — the lowest it’s been since May 2004.

Two-year CD increased to 1.47% from 1.46% — the lowest it’s been since August 2003.

Five-year CD fell to 2.17% from 2.20% — the lowest average since Bankrate began tracking 5-year CD rates in January 1984.

Of course you can earn more than that if you use our extensive database of CD rates to search for better-than-average deals.

But the best rates you’ll find today are no better — and sometimes worse — than the average rates we were earning last summer and fall.

No one in Washington will come right out and say this, so I’ll do it for them.

Saving the banking industry from collapse after its reckless lending binge of the early 2000s is a higher priority than helping average Americans earn a reasonable return on their savings.

That’s why the Federal Reserve is pushing interest rates artificially low — well below where they would be if they were being set by the marketplace.

One way to help the banks boost profits and cover all of the bad mortgage and credit card debt on their books is to increase the difference, or spread, between what they pay for money and what they can earn from loans.

To do that, the government-controlled bank has dropped what it charges commercial banks to borrow money to rock-bottom levels, charging from 0% to 0.25% for overnight loans.

With the government providing so much cheap money, the banks can pay next to nothing for our deposits — such as the 0.01% Chase Bank is offering on its savings accounts.

What could make the Fed reverse course?

Clear signs that the big banks are returning to financial health and no longer need lots of cheap money or a spike in the inflation rate.

Indeed, many free-market advocates insist that the Fed’s policy and record federal budget deficits will ignite a bout of hyper-inflation like the kind we suffered through in the late ’70s.

Maybe worse.

But the Consumer Price Index, the government’s key measure of inflation, has fallen 1.3% over the past year.

Although that’s almost entirely due to a 23.5% decline in energy prices, it’s still the largest decline in the CPI in nearly 60 years.

The “core CPI,” which excludes volatile food and energy prices, did increase 1.8% from May 2008 to May 2009.

Since the Federal Reserve usually considers inflation to be in check when the core CPI is growing by less than 2% a year, there’s nothing in the latest CPI numbers released Wednesday to make it change course anytime soon.

But if not now, or not this summer, then when?

Futures contracts tied to the Fed’s overnight rate indicate that money market traders think there’s a 70% chance it will raise rates by a modest quarter point in November.

They base that opinion on the improvements they’re seeing in the banking industry and overall economy, and projections that the recession will end late this year.

Many economists argue that Fed Chairman Ben Bernanke will be far more cautious. They say he won’t start raising interest rates until he’s sure the recession is over and a strong recovery is underway — and that won’t be until mid-2010.

Either way, it appear the best we can hope for this summer is that CD rates will level out and stop plunging to new lows each week.

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