banktime.com

For Americans trying their damndest to save money in this day and age, it seems like the recession is stymieing them at every possible opportunity. Pensions are drying up as once-stable domestic companies declare bankruptcy (see: Chysler and General Motors), 401k and IRA plans are losing money, and the cost of living continues to get higher. Certificates of deposit have historically been viewed as one of the “safest” way to save money, since it is locked into a fixed rate for the duration of the bond. In the past eighteen months, however, CD rates have tanked. People trying to earn an income off their savings – and particularly senior citizens – and really starting to feel the crunch. IRAs, for example, may be yielding as little as half a percent, down from the five-percent money market average of just a few years ago.

Right now, the average national CD rate for a one-year term is a paltry 1.20%. Really diligent shoppers might be able to snag a 2.5% rate for a one year CD if they already have a relationship with that bank, but this is still junk compared with the mean yield of nearly four percent on one-year CDs that was hit during the spring of 2007. Those who locked in CD rates for long terms during more halcyon days are now struggling with the fact that they will be taking an exponential loss by rolling over their investment. Five-year CDs, which have always held the richest yields thanks to their long-term investment, are down to a low figure of 2.2%, with some outliers offering a high of about 3.7%. Consumers have to be very careful of any lender offering rates higher than that, because so-called “CD” scams have been thriving during the recession. Always carefully examine the contract that is presented to you before you lock your money into such an account.

This drop has been hard on seniors, who depend on earning off their savings to supplement pensions. Many surviving spouses of lifelong Chrysler and GM employees are literally terrified of what could happen to their already limited incomes. Chrysler pensioners have already seen their healthcare costs go up due to the unfavorable terms of a union settlement, with some co-pays more than doubling.

Advice from financial experts is not reassuring. Analysts have pretty much stated that seniors will just have to ride out the low rates as well as they can, since there’s very little that can be done about the economic situation at present. It’s predicted that CD rates will be better next year, and even higher another year after that. Although the return is lower, it makes the most sense to invest in a one-year CD at the moment. Savers would do well to use their assets to pay down debt if they have any, since they aren’t exactly in a position to earn off their money and interest rates have risen dramatically. The only positive note right now is that there should be an end in sight, and that financial struggles might be short-lived, if consumers can just soldier through the next several months.