bank rates

CD rates resume their slide this week

Bankaholic.comCD rates resumed their slide this week, indicating that they still haven’t bottomed out.

Bankrate’s weekly survey of large banks and thrifts taken June 24 found the average annual yield for a:

Three-month CD declined to 0.58% from 0.60% the previous week. That’s the lowest average since Bankrate began tracking 3-month CD rates in March 1989.

Six-month CD fell to 0.87% from 0.89% — the lowest average since Bankrate began tracking 6-month CD rates in January 1984.

One-year CD fell to 1.16% from 1.19% — the lowest it’s been since April 2004.

Two-year CD held at 1.47% for the second week. That’s just one-hundredth of a point higher than the 52-week low reached earlier this month. Taking a longer-term look, this is the lowest 24-month CDs have been since August 2003.

Five-year CD ticked up to 2.18% from 2.17%. Last week’s average was the lowest 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.

That’s because the Federal Reserve is pushing interest rates artificially low to save the banking industry from its reckless lending binge of the early 2000s.

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 — 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.

The Fed’s rate setting committee met Tuesday and Wednesday, and concluded that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

And what about inflation?

A spike in the inflation rate would force the Fed to reverse course and start raising rates.

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.

The statement released after the Fed meeting acknowledged that energy and other commodity prices have risen over the past month or so. “However,” it said, “substantial resource slack is likely to dampen cost pressures and the committee expects that inflation will remain subdued for some time.”

That’s pretty clear.

The Fed doesn’t see inflation as a threat — the Consumer Price Index, the government’s key measure of inflation, has fallen 1.3% over the past year.

Therefore, it will continue to hold interest rates at these depressed levels for the foreseeable future.

There’s certainly nothing here to make economists who think Fed Chairman Ben Bernanke will be very cautious change their mind. The common wisdom is that Bernanke 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.

It seems that the best we can hope for this summer is that CD rates will level out and stop plunging to new lows each week.

So far, that hasn’t happened.

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  1. brian said:
    on June 28th at 08:16 am

    Yes, the FED will likely keep interest rates low for an extended period of time. As far as CD rates go, if rates go much lower there will be NO incentive for anyone to invest in them. Already, the top liquid money market accounts offer rates better then most CD’s with maturities under 1 year. The online banks can’t afford to continue to lower rates and still keep customers who would normally bank at large B&M banks that traditionally pay lower rates but offer more ATM’s and other advantages over their online competitors.