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Four Years And Counting Without 3% CDs


This is an anniversary we just hate to mark every spring.

But here we are, commiserating together again.

It has now been four years since any of us could earn 3% or more on a nationally available 5-year CD.

The morning of May 25, 2011, began with tiny American Savings Bank in Portsmouth, Ohio, selling its 60-month CDs to savers across the country for 3.00% APY.

But during the day, it restricted that deal to local customers, kicking off a spectacularly fast and awful decline in national yields.

Just one year later, the top 60-month rate was a shocking 1.81% APY.

That’s equivalent to losing a tenth of a percentage point every month for a full year.

After that, the rate bobbed up and down a number of times, but settled at an even worse 1.75% by May 2013.

Thankfully, last year’s anniversary brought better news, with the top national rate having climbed to 2.30% APY.

Today, we appear to be on a plateau, holding for almost three months now at 2.25% APY.

To be clear, breaking below 3% wasn’t the start of the collapse in savings rates. That began in 2007.

Nor was it the last time any community bank or credit union offered local customers or members 3%.

In fact, since last May our rankings of the highest local rates has featured about a half dozen CDs paying 3.00% APY for terms of 5 years or less. (Unfortunately, none of them are still around.)

But nationally available deals from the banks on our CD Rates Leaderboard? No. None.

Psychologically, we think the drop below 3% for those CDs was a huge blow to savers.

If you can’t make at least that much with a 5-year commitment, many savers concluded that CDs could simply not provide a reasonable return on their money.

It’s why the amount invested in CDs fell from a record $1.4 trillion dollars in late 2008 to less than $500 billion today.

Now we’d like to think this will be the last time we’ll have to note this sorry anniversary.

But whether nationally available 3% yields are back before next May depends entirely on when the Federal Reserve finally begins pushing interest rates back toward more normal levels.

Back in February 2007, before irresponsible mortgage lending led the economy over a cliff, the national average return for 5-year CDs was 4.02% APY.

By most historical standards, that’s a reasonable rate for savers to expect.

Then the Fed stepped in to talk the markets off a ledge by embarking on a path of artificially repressed interest rates that has continued for six years now as the economy strives toward full recovery.

As we’ve been reporting, all signs point to the Fed finally beginning to raise interest rates sometime this year, and — we hope — continuing cautiously on an upward path over the coming years.

But we still have no idea when that first hike will come, or what pace the central bankers will deem appropriate for future increases.

Although the first quarter-point rate hike could come as early as June, the minutes of the Fed’s April rate-setting meeting released last week indicate that’s unlikely.

Indeed, since the minutes’ release, Wall Street’s FedWatch calculates the probability of the first rate increase occurring in July to be 7%; in September, 23%; and in October, 40%.

It isn’t until December that FedWatch’s odds are better than even, at 56%.

If, however, the Fed starts raising rates anytime during this year, there’s a good chance we’ll see 3% CDs before next May.

When we finally reach that benchmark again, you can count on us to shout it from the rooftops. It will be the signal savers have been waiting for that certificates of deposit are back as a worthwhile investment.

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  1. Alvin Cee said:
    on May 25th at 12:19 pm

    Why are you predicting 3% CDs before May just because the Fed increases short-term interest rates to banks by the end of this year?