How to Play $1K: Sweet CDs

Rising Yields

CDs have definitely lost some luster with falling interest rates. But that's no reason to shrug off CDs completely. Banks, for one, certainly have not given up on these savings vehicles.

Amid competition for clientele and a stormy credit market, big-box financial institutions, from Bank of America (BAC Quote) to Wachovia (WB Quote), as well as local credit unions and cyber banks, are upping their yields on short and long-term CDs to lure in depositors. After all, "most banks still fund themselves out of their deposits. That's what they use to generate loans," says Keith Leggett, a senior economist with the American Bankers Association.

Not to mention, with the inflation scare, banks are trying to meet consumers' anticipated savings needs. "Inflationary expectations will cause interest rates to rise," says Leggett. "Savers...are going to demand a higher interest rate to compensate them for this risk."

Two Starting Points

Credit unions tend to offer higher yields, since they do little marketing and don't depend on huge spreads to please shareholders.

Experts say they have a history of better savings rates than traditional banks. "A very conservative difference [between a credit union and a bank] would be half to three quarters of a point [more on CD yields]," says Daniel Penrod, industry analyst for the California Credit Union League.

Websites like findacreditunion.com and creditunion.coop can help you search for a credit union. TheStreet.com's BankingMyWay.com is another useful source of credit union information and CD rates.

Credit union CD rate highlights: Meriwest Credit Union in San Jose, California is offering a 12-month CD at 7.50% (minimum deposit: $1,000, "local funds" only) and Alabama-based UmbrellaBank.com is offering a 6-month CD at 3.30% (minimum deposit: $1,000) .