No Relief From Fed As CD Rates Fall Again

CD rates resumed their decline this week, with short-term rates falling to new, record lows.

There’s no reason to think the broad and precipitous decline that began two-years ago will reverse itself this year — or even in early 2010.

The Federal Reserve’s rate-setting committee met on Wednesday and said the severity of the recession will force it to keep interest rates “exceptionally low” for “an extended period.”

Bankrate’s weekly survey of large banks and thrifts taken Aug. 12 found the average annual yield for a:

Three-month CD declined to 0.49% from 0.51% the previous week. That’s the lowest average since Bankrate began tracking 3-month CD rates in March 1989.

Six-month CD fell to 0.75% from 0.76% — the lowest average since Bankrate began tracking 6-month CD rates in January 1984.

One-year CD fell to 1.06% from 1.07% — approaching the record low of 1.03% set in July 2003.

Two-year CD held at 1.51% for the second week. The average rate declined to 1.46% in June, the lowest 24-month CDs have been since August 2003.

Five-year CD fell to 2.16% from 2.18%. That’s only a tick above the 2.15% reached earlier in July, which was lowest average rate since Bankrate began tracking 60-month CDs 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 sorry fact is that the best rates you’ll find anywhere right now are lower than the average rates we were enjoying last summer and fall.

Last week’s survey was the first since Oct. 8 in which none of those five rates declined — three held steady and two increased.

At the time we said that wasn’t enough to think CD rates have hit bottom. “We’ll need at least a few more surveys like this to draw such a conclusion.”

Unfortunately, we didn’t get even a second week of stable or slightly rising rates to encourage the idea that all CD rates might be bottoming out.

The most optimistic trend we can point to is that long-term rates — those for 24- and 60-month CDs — have not fallen past the lows they established in June and July. So perhaps they’re stabilizing.

That is certainly not the case for short-term rates, which continue to leave us wondering: How low can they possibly go?

The Federal Reserve has been pushing interest rates artificially low as part of its effort to rescue the financial industry from its reckless lending binge of the early 2000s and the recession it created.

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 on certificates of deposit, money market and savings accounts.

The statement released after the Federal Reserve’s Open Market Committee met Wednesday sounded a hopeful note, saying that “economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing.”

The Fed even said it will gradually phase out its program to buy $300 billion worth of Treasury bonds between now and the end of October — the first major economic stimulus effort to be phased out.

But the statement listed all of the economic indicators that are not going well, everything from a continuing contraction of the labor market, sluggish income growth, declining home values and business investment.

Fighting the recession is still the Fed’s top priority, the statement said, which means raising the overnight loan rate — the first step to higher CD rates for investors — isn’t even on the horizon.

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Top 36-Month CD Rates Fall Below 3%

Intervest National Bank is now offering the best nationally available deal on 36-month certificates of deposit — 2.90% with a minimum deposit of $2,500.

The bank, which is based in New York City and has six branchs in the Clearwater, Fla., area, didn’t accomplish that by raising its rates.

It just stood pat while the two banks that had been offering better deals cut their rates.

newdominionDIRECT.com was the only bank paying more than 3% in our July survey of the best 36-month CD rates.

Boston-based First Trade Union briefly hit 3% earlier this month.

But both have pulled back well below 3%.

Frontier Bank with 38 locations in Washington and four in Oregon, is also offering 2.90% APY on a 3-year certificate of deposit.

The minimum deposit, however, is a hefty $25,000.

While Intervest and Frontier still beat the national average of 1.77% for 36-month CDs by more than a full percentage point, you’ll have to buy a top-paying 48-month CD to earn more than 3%.

(We’ve written about Intervest several times before and haven’t heard any complaints about its service. It’s also paying a respectable 2.50% APY on a 30-month CD and 3.15% on 48-month CDs, with the same $2,500 minimum deposit.)

You can use our extensive database of CD rates to compare these offers with the best deals from scores of other banks.

Related Posts:Intervest Bank 2.95% on 18-month CDIntervest National 2.60% Savings AccountFirst Trade Union Tops 36-Month CD Rates36-Month CD Rates Down But Not OutTop 36-Month CD Rates Remain Above 3%