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Interest rates on deposit accounts including certificates of deposit and savings accounts have been miserably low for a while now. Unfortunately for depositors, interest rates have been low since 2008 when the economy into a deep recession. When the economy slowed down and the recession started the Federal Open Market Committee lowered the Fed Funds rate to a record low of zero percent to 1/4 percent. The Federal Open Market Committee (FOMC), which makes decisions about interest rates, has kept the Fed Funds rate in a targeted range of zero percent to one quarter percent since late 2008. The first FOMC meeting in 2011, the Fed decided to keep the Fed Funds rate at zero to 1/4 percent. The record low Fed Funds rate has forced CD rates and savings account rates to record lows. Before the recession started one could find banks and credit unions offering 12 month CD rates between 3 percent and 5 percent. In 2011, you're luck to find a 12 month CD rate paying 1.50 percent. If you were fortunate to buy a home recently or refinance an existing mortgage you benefitted from record low mortgage rates. In 2008 30 year mortgage rates were around 7 percent to 8 percent. In late 2010, 30 year mortgage rates hit a record low of 4.09 percent according to Freddie Mac. 30 year jumbo mortgage rates were being offered at around 5.00 percent late in 2010. Record low bank CD rates and credit union CD rates have been a hardship for retirees who count an interest income earned on certificates of deposit. There is some light at the end of the tunnel for CD investors. The economy recovery is underway. Gross Domestic Product (GDP) has been in the 3.00 percent range since the third quarter of 2010. As the economy picks up steam the cost of goods and producing goods will go higher, this will drive the Producer Price Index (PPI) higher. As the PPI goes higher the cost of finished goods, the Consumer Price Index (CPI) will go higher. A higher PPI and CPI will drive inflation higher. As inflation picks up steam the FOMC will raise interest rates to keep a lid on inflation. When the FOMC raises rates banks and credit unions will start raising rates on CD rates and savings account rates. Mortgage rates will also go higher. In fact, mortgage rates will probably increase before deposit rates do. This should all play out sometime in 2011. The likely scenario is inflation will become a concern in the second half of 2011. Once inflation is a concern rates will go higher. Certificate of deposit investors having a CD mature in the next 12 months shouldn't lock into a long term CD. That also goes for new CD investments. If you want to take advantage of the rise in interest rates you need to stick to short term certificates of deposit, or even place our money into a variable rate account like a savings account or money market account. This way you will position yourself to take advantage of rising CD rates. When rates do start heading higher stay will short term CDs so you can ride the interest rate wave higher. The longest term certificate of deposit I would invest in at this point would be a six month CD. When CD rates start going higher stick with 3 month CDs or even 1 month CDs. When the economy cools that is when you jump into a longer term certificate of deposit like a 2 to 5 year CD. The trick is to lock into a high CD rate when rates are at their peak.
Search and compare CD rates, Savings Rates, and Mortgage Rates at RatesORama.com. You can find the best CD rates by searching our rate tables in your state.
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