Every two weeks I check in on the CD situation, and every fortnight I am freshly disappointed with the whole state of affairs. Savers are having a very tough time of it right now. CD ladders have historically been considered a top way to invest in certificates of deposit. A normal CD ladder involves a process through which one takes a matured CD and rolls it into a long-term certificate at the best-possible rate of interest. Many committed savers stick to five-year CDs, because these have always offered the very best rates of return. Today’s environment, however (in which rates are in the gutter and even five-year CD rates are barely worth the time and trouble), has seen some savers bumping up to seven or ten year CDs in order to maximize their interest in tough times.
December has brought both good news and bad news for those who have been despairing of the record-low CD rate in the past few years. On one hand, the top CD rates haven’t changed in the past six weeks – yay, no more plummets! On the other hand, the top CD rates haven’t changed in the past six weeks. Boo for stagnation.
CD rates are still in the gutter, and with no sign of making a comeback any time in the near future. If anything, interest rates are continuing to fall, chipping away at the micro-fractions of a percent that savers might be able to scrounge out of their certificates. According to K. Steven Lovell, lecturer of economics and finance at University of Texas Pan American, senior citizens continue to be hardest-hit by the interest rate lull. Those who live on a fixed income rely strongly on the dividends from their savings, and CDs just aren’t the safest bet right now for those living this lifestyle. What can seniors do to make money on their savings if their historical standby, CDs, just aren’t cutting the mustard?
Many consumers probably thought it a victory when Bank of America rescinded their decision to charge a five-dollar-a-month fee on consumer checking accounts connected to an ATM card. Many Americans, however, don’t realize how many banks are upping their fees nowadays, in the wake of banking reform and a number of legislative changes that have made things much less hospitable to profits. The reason they don’t realize it? Banks are being super-stealthy with these changes, knowing how unpopular they will be with customers.
South Florida is a mecca for senior citizens. The balmy year-round summer sun warms their bones, and the laid-back social climate suits the retiree crowd just fine. Unfortunately, economic conditions have conspired in the past few years to rain on seniors’ relaxing and sun-drenched retirements. Many older Americans chose to invest at least part of their savings in certificates of deposit, a decision that they are coming to regret. Rates have been sagging for years, and endless months of next-to-zero returns are taking a serious toll on the nest eggs of these citizens. CDs have long been popular with seniors, thanks to their federally-guaranteed protection of assets. Consequently, the downward trend is taking a big bite out of many South Florida seniors’ incomes.
The Fed announced recently that, in response to continue threats to economic recovery, it would extend low interest rates for another two years. For Americans, this news is a mixed blessing. The Federal Reserve, which was admittedly divided on the subject of consumer interest rates, determined that the economy is weak enough to warrant a continuation of rates close to zero percent. Additionally, the Fed set a “target rate” that banks follow closely when setting the “federal-funds rate” they charge each other for overnight loans as well as the competitive interest rates they charge consumers and businesses.
Good things in life come to those who maintain good relationships. In the business world, it’s just a fact. One’s interpersonal skills are just as important – if not more so – than one’s smarts, head for business, or ability to speak several languages. For banks, relationships are as important as they are to the rest of us. Historically, faithful customers of a bank has always received better services and more favorable terms on their banking products. Lately, it seems like banks are getting more overt and generous in this category, allowing customers with standing relationships to get better rates on CDs.
If you have a decent amount of money tucked away in savings, you might be getting to think about investing it. After all, even the best savings accounts out there are pretty dismal in terms of the return that you can expect to get on your money. That is, of course, because savings accounts put your money at no risk. In the world of finance, risk = money. The higher the risk, the higher the potential return. The surer you can be in the safety of your money, the lower the interest rate. It’s just a fact. CDs are a good choice for those who want their money to be very safe, but eschew savings accounts. A certificate of deposit is a pretty simple investment for even the most novice of savers, but there is slightly more to buying one than just comparing the interest rates.
If you are feeling fed-up with CDs, you are far from the only one. The past several months have seen interest rates on certificates of deposit hit all-time lows. For savers in 2011, it just has not been a pretty picture. Even the best CD rates are less than two and a half percent on average… and that’s for a bond that will tie up your money for five years! If you go with a bond that won’t tie you down for the long-term, you are looking at a payout of less than one percent. The CD situation is so bad that many savers are now shying away from these bonds entirely. Of course, savers need an alternative by which to invest their money! That’s why, today, many consumers are turning their attention to a new crop of low-risk investments. These investments take what people like about CDs – deposit limits of a quarter-million dollars and FDIC insurance – and add a slight improvement to the return rates.
It sucks to be a CD saver right now. How many times have I written that same exact sentence in the last three years? (The answer is: approximately umpteen.) As time marches on, savers are being continually insulted by the record-low interest rates on certificates of deposit. Nowadays, it is perfectly common to receive only a fraction of a percent in interest for the privilege of parking your money with a bank for anywhere from several months to a few years. The American consumer base has largely responded to terrible CD rates by cutting back on buying these bonds. I assume that people are sticking with savings accounts, or simply hiding their money in a coffee can somewhere. For those who are sticking with the CD game, the wrath of the banks has produced a new hurdle: higher penalties for pulling money out early.