Recently, TheStreet.com’s Jim Cramer came out on his CNBC television show Mad Money with a “buy” recommendation on certificates of deposit.
Jim told his viewers that longer-term U.S. Treasuries are heading south, thanks to a rise in inflation that’s heading down the pike faster than many on Wall Street might think. As we’ve said before, any decline in U.S. bond prices means a corresponding hike in CD rates. For the next year-and-half, CDs should offer investors a safe haven from higher inflation – Wall Street’s way of saying that prices rise when too much money chases too few goods - and a declining stock market. The fact that CDs are FDIC-insured is a nice bonus, too, Jim adds. By the time a two-year CD matures, the investment landscape should look a lot different, as inflation begins to take center stage.
The corollary to Jim’s case for CDs is that, since CD prices are so low, they really have no place to go but up – especially if inflation becomes such a concern that the Federal Reserve feels compelled to combat the wealth-eroding consequences of rising inflation.
That’s certainly the case this week, as CD rates hover at the lowest rates we’ve seen in more than 20 years.
Take three-month CDs, for example. At 4.84%, about the same as last week’s 4.81%, three-month CDs are at their lowest levels since 1989. Six-month CDs fare no better – at 0.73%, they’re at lows last seen in 1984.
One-year CDs, as measured by the BankingMyWay National CD Rate Tracker, are down to 1.06% - only slightly higher than averages investors last saw in 1983.