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CD Rates Down, Savings Rates Steady, I Bonds Up

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It’s hard to be a saver in the United States. Between the constant assault on our senses from the advertising and marketing industry to the systemic disincentivization of saving by the Federal Reserve (lowered interest rates means savings earn less interest, which means savers are punished if interest rates are below inflation rates as their purchasing power is eroded), it’s really difficult to justify not going out and spending your entire paycheck on junk from Bed Bath & Beyond (don’t forget those 20% off coupons!).

If you look carefully though, there are still opportunities to save but they are quite fleeting. One good place to consider are CD rates, though the rates have been going down as the Fed rate plummets to the depths we haven’t seen (well, that I’ve never seen) for many decades.

In the last month, several CDs I’ve been tracking (on the best CD rates page) have lowered their rates:

  • Dime Direct increased the maturity rate on its 4.50% APY CD from 6 to 12 months (now back to 6).
  • Corus Bank lowered its 12-month CD rate from 4.45% APY to 4.40% APY.
  • Virtual Bank lowered its 12- and 18-month CD from 4.40% APY to 4.08% APY.
  • Capital One’s 12-month 4.41% CD dropped to 3.85% APY, though you can get the 4.41% APY if you opt for the 18–month CD.
  • Wachovia lowered the yield on its 12-month CD from 4.15% APY to 4.00% APY.

If you know of any competitive CDs out there that I don’t have on the list (only ones within spitting distance of the low to mid 4% range for a maximum of 18 months maturity period), please let me know and I’ll add it to the CD rates. I don’t think it adds value to add any banks that offer only in the 3% range anymore since there are already so many.

As for high yield savings account rates, there hasn’t been much change since the last time I updated the list. I updated the last right after the emergency rate cut by the Fed (prior to the last cut at the end of October when the target funds rate was lowered to 1%). At that time, I can remember only two banks cutting their rates by 0.25% – ING Direct to 2.75% APY and FNBO Direct to 3.25% APY. Since then, only EverBank has lowered its rates from its “ridiculous” (in our current rate environment) 3-month promotional of 4.65% APY to 3.93% APY (the current blended rate for one year for Everbank is 3.40% APY).

Finally, Series I Bonds from the Treasury rates have gone up. The fixed rate was increased from 0.00% to 0.70% and the inflation component was increased 2.46% from 2.42%. For the next six months, Series I bonds rates will be 5.64% APY based on their equation (if you bought rates before this month, the rate is an equation that includes whatever your fixed rate component is). My wife and I both bought some Series I bonds back in April when the fixed rate was 1.2% so we’re presently enjoying ~6.15%. (if you want a quick way to calculate your yield, I made a Series I Bond Rate Calculator)

{ 14 comments, please add your thoughts now! }

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14 Responses to “CD Rates Down, Savings Rates Steady, I Bonds Up”

  1. Larry says:

    Great Article! I had no idea that you could get such a great rate over 4%

    I wonder if there is a Money Market account out there with a similar rate if not higher. If you could find a Money Market account just a quarter point or two below the max CD rate you could find, would you put your money in the Money Market account instead to maintain liquidity?

    Larry

  2. Thank you. This is valuable. Really valuable. I’m forwarding it to friends who have been smart enough to keep some of their savings out of the stock market (unlike, say, moi).

  3. jim says:

    I think, given all the volatility in the markets, that sitting it on the sidelines for a while isn’t a bad idea.

  4. I wonder why the government limits your bond purchases. You’d think they be happy to sell more bonds nowadays.

  5. Sam says:

    Hi Jim -
    I am a long time reader of your blog (first time commenter) and I lost all the bookmarks (thanks to a pesky virus). I was having withdrawal symptoms and had to do a bit of googling to “find” your blog again and I am happy I did find it lol.

    I always thought of commenting but never had a chance to! I thought one thing you would find really interesting is that a local bank in our town has a checking account that gives 6.01%(APY), 5.875%(APR) interest (for balances upto 25,000). You just have to “meet” certain requirements like use your debit card at least 10 times a month, login to your bank account at least once a month, and have either a direct deposit or direct withdrawal from the account and voila you get to make that extra cash! I have been reaping the benefits since about Feb this year and I am hoping all this economic downturn won’t make the bank change its interest rates :) ! It hasn’t so I have my fingers crossed. I even took money out of CDs (when they matured) and money market accounts and put it all in this bank. I thought you would find this fascinating!

  6. jim says:

    @FiveCentNickel: Yeah it’s weird, you’d think they’d want Americans to own more bonds like they did back in the World War eras. I suppose money you put into bonds is money you aren’t putting into the economy?

    @Sam: Those rewards checking accounts are really nice but a lot of them have really stringent requirements, which is something to be aware of. 10 debit transactions is a lot in one month and debit transactions are often not as “good,” but that’s not a good reason NOT to take advantage of those offers.

  7. Sam says:

    Jim -
    I would like to know what you mean by “often not as “good”" just so I am not doing something I am not aware of. :)
    I have worked out to where I use the debit card for less than 10 – 20$ purchases, as in if I go to the grocery store, I separate out the things I have in the cart, usually into 2-3 transactions. I pay the toll with the card too, which is only 2-3$ per transaction. For all other major expense transactions like gas, I use my credit card and get the cash rewards :) . And and, I figured out that if I pay off the credit card using this bank account it treats it like a debit transaction (i have no idea why). So, I usually auto set up this for 3-4 times if I cannot meet the 10 per month deal. So far so good as long as you don’t overdo the debits without being “aware” I guess…….

    But I am still curious on what you mean….for my own understanding..

  8. Eric N. says:

    I’m glad I bought the bonds back when you did too! :)

  9. I’ve come across Everbank in the Chicago Tribune a couple times with respect to their foreign currency offerings. What’s their deal? How are they able to offer higher interest rates on high yield savings?

  10. Gates VP says:

    So if inflation-adjusted government bonds are paying 5.64% at the government’s estimated inflation numbers. Doesn’t this mean that using any one of these CDs is actually going to cost you money?

    Given that some data points to the government intentionally low-balling inflation, doesn’t this make the use of those CDs even more questionable?

    I mean, sure, you have to keep around a couple of thousand in cash. But @Sam has to jump through hoops to basically break-even.

    I know that people here are gun-shy and don’t want to lose money in the market. But right now, all of the above-listed investment vehicles are actually going to lose you money. (Jim can we get that as a caveat?)

    Also, given that the only way for Barack to maintain his promises is to print more money, doesn’t it seem like a safe bet that we’re going to see more inflation?

  11. Jim B says:

    I just opened a 5% six month CD at DimeDirect.com. You must also open a checking account and have a direct deposit or at least one bill pay per month but, the checking account pays 3% at $5,000+. Best deal I’ve seen.

  12. Jim B says:

    As far as Money Market accounts go, Dollar Savings has a 4% money market account with no strings.

  13. kitty says:

    I also bought I bonds back in April, maybe even March. I did it before they reduced the limit from 5K direct and 5K through a bank to 5K overall, so I managed to buy 10K. Can’t buy anymore. Don’t understand either why they don’t allow more. TIPs may be an OK alternative, I haven’t bought them yet.

    For those who can stand a tiny bit of risk, there are some great deals now on municipal bonds. A couple of weeks ago I got 5.36% tax free yield-to-maturity (5.25 coupon rate) on AAA municipal bonds that mature in 2014 – this deal is gone now as the bond value is up – I am even thinking just selling it, although I’ll probably keep it as long as yield-to-maturity (YTM) seems attractive. But there are still some good deals – last week I got 5.3 YTM on AA bond that matures in 2024. I just check and at least on NY state bonds (I live in NY state) YTMs are around 4% for AA and AAA bonds that mature within next 5 years, and over 5% for those that mature around 2024. Keep in mind that the interest is free from federal and, as long as you buy your state’s bonds, state taxes as well. So, for me in my 28% bracket and high tax state, 5.3% tax-free is almost the same as 8% taxable.

    I know the maturity in 2024 is a long way away, so it’s probably not a good choice for an emergency fund. You can always sell bonds, although if you sell before maturity you’ll do it for the current value which can be above or below what you paid for it. As long as the interest rates keep going down, the bond values are likely to keep going up, though.

    Also, this is simple interest, not compound interest, but as you get interest paid to you twice a year, you can simply invest it in something else. Something to look into, anyway. There is a little risk, but as long as you keep to AA and AAA bonds, the risk is small.

    There are some good deals in corporate debt as well, but it’s riskier – it’s difficult to know every detail of companies’ balance sheet. I was considering American Express bonds that paid over 10% last time I checked, but there was a negative credit watch on the company. Not sure how it changed now that it is a bank holding company.

    You need to have a certain amount of money to buy individual bonds, though – most of the bonds have 5K minimum purchase requirement. But it is an option if you are looking for a place for your money that is less risky than stocks yet want bigger returns than CDs.

  14. ken says:

    With these institutions offering such lucrative rates, one needs to ask ones self, exactly what are they doing with your money to be able to turn a profit at such inflated interest rates? It sounds, just upon its’ face, as if they are dealing in high risk lending practices, which could lead to difficulties down the road. Two old adages come to mind 1) Buyer beware, 2) When in doubt, measure twice and cut once.


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