Have certificates of deposit finally stabilized – and will interest rates bounce back up now that their downward slide seems to be abating?
The evidence suggests that CD rates may have found a secure platform – one that CD investors can depend on to act as a solid foundation for future rate growth.
To the naked eye, CD rates this week would seem to tell no such tale. In fact, most categories fell slightly last week, according to the BankingMyWay National CD Tracker. Three-month CD rates are up first, falling to 0.51% from 0.53%; six-month rates falling to 0.78% from 0.8%, and one-year CDs slipped to 1.12% from 1.14%. On the longer-end, four-year CDs lagged at 2%, down from 2.05% last week. Five-year CD rates actually rose to 2.29% from 2.24%.
But below the surface, we’re seeing rates this month pretty much where they were last month – a signal that the month-to-month declines we saw earlier in 2009 may finally be ending.
Of course, one month doesn’t a trend make. But, as the old Chinese proverb goes, “every journey begins with a single step.”
What we’re witnessing now may be that first step for CDs.
Here’s why. Unless you’ve been away at the beach or up in the mountains, far away from civilization with your cell phone unplugged, you haven’t missed the steadily-increasing drumbeat of news signaling the economy is on the mend. That alone probably accounts for the faint pulse we’re feeling from the CD market.
Federal Reserve Chairman Ben Bernanke triggered a rally in the financial markets when he said that the worst of the economic crisis was over. Both housing starts and sales of existing homes are on the upswing, providing some enthusiasm that the all-important housing crisis has eased. That should translate into higher consumer confidence (no surprise, given that most of Americans’ wealth is in their homes) and result in consumers spending more money again.
That’s really what investors are looking for. Once the Great American Spender is out there at the mall again on Saturday, digging deep for those big screen TVs and sit-down law mowers (or even $25 sneakers or a new T-shirt, or two) then the herd will finally get out of fixed-income products and into the stock market for good.
Sure, we’ve seen more investors move from bonds to stocks – with the latter posting significant gains during the last six months (a 50% rally from March 1 to Aug. 31, as measured by the Standard & Poor’s 500 Index.
But we need to see more investors make the trip to stocks before banks will have to really sit up and take notice, and start offering more competitive rates in order to attract more investors to deposit rate products.
Again, that really hasn’t happened yet, but the ingredients are there, the stove is lit and the chef has entered the kitchen.
If current economic conditions continue to advance, then things, after a long deep-freeze, will really start cooking again for CD investors.