bank rates

No Help From Fed As CD Rates Slide Again

The Federal Reserve said it will continue to hold interest rates down for an “extended period” as CD rates reached new record lows this week.

The Fed’s rate-setting committee met on Wednesday and concluded that the weak economic recovery continues to make cheap credit more important than reasonable returns for investors.

The Federal Reserve said it will continue to hold interest rates down for an "extended period" as CD rates reached new record lows this week.As a result, prudent savers will continue to pay for the imprudent lending (and borrowing) that led to last year’s financial crisis well into 2010.

Bankrate’s weekly survey of large banks and thrifts taken Nov. 4 found the average annual yield for a:

3-month CD remained at 0.40% for the second week. That’s the lowest average since the survey began tracking 3-month CD rates in March 1989.

6-month CD fell to 0.57% from 0.58% — the lowest average since the survey began tracking 6-month CD rates in January 1984.

1-year CD fell to 0.91% from 0.92% — the lowest average since the survey began tracking 12-month CD rates in October 1983.

2-year CD fell to 1.39% from 1.40% — the lowest average rate since July 2003.

5-year CD rose to 2.20% from 2.19%. That’s slightly above the 2.15% reached in July, which was lowest average rate since the survey began tracking 60-month CDs in January 1984.

(Smart savers won’t settle for average returns. Use our extensive database of CD rates to compare the best deals from scores of banks.)

The Federal Reserve has pushed interest rates artificially low to save the banking industry, prop up housing prices and boost the economy out of the Great Recession.

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 banks can offer some loans at extremely low interest rates. (See our most recent post on the best mortgage rates for a good example of that.)

But it also means they can pay next to nothing for deposits, including CDs, money market and savings accounts.

Many economists don’t think Federal Reserve Chairman Ben Bernanke will allow interest rates to rise until the job market bottoms out and shows significant improvement.

If the unemployment rate peaks in February, they suspect Bernanke might allow interest rates to begin rising sometime next summer.

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