When it comes to politics, opting for the lesser of two evils is a common refrain from citizens emerging from the voting booths.
When it comes to investing, it’s not so clear cut. After all, what’s an investor to do these days? It really boils down to two seemingly unappealing options.
Option #1: Hold your nose and dive into the stock market, where the Dow Jones Industrial Average has fallen by about 1,000 points since late April. While nobody really knows what the stock market will do, events in Greece, the Gulf of Mexico and at Goldman Sachs seem to be choking market growth.
Option #2: Hold your nose and play defense by plowing your money into cash. The problem there is that bank savings rates are lower than Kobe Bryant’s confidence in getting any help against the Celtics this week.
How low are bank deposit rates? Let’s break down a few key average bank rate indexes, as measured on June 15 by BankingMyWay.
- Two-year certificates of deposit (BankingMyWay Weekly CD Rate Tracker) = 1.203%
- Interest checking rates (BankingMyWay Interest Rate Tracker) = 0.124%
- Money market accounts (BankingMyWay Money Market Tracker) = 0.316%
- Savings accounts (BankingMyWay Savings Account Tracker = 0.213%
All of a sudden, that long, risky dive into the stock market might be looking better. That’s especially so after a report from CNNMoney’s The Buzz this week that the Federal Reserve won’t raise interest rates until 2012.
You read that right. Not 2010. Not 2011. But 2012.
The Buzz quotes John Derrick, director of research for U.S. Global Investors, a San Antonio-based money manager, who thinks that government budget cuts could crimp economic growth — and force interest rates to remain at bottom-feeder levels. "There is no need for the Fed to raise rates soon. It could easily wait until 2011 or beyond," Derrick told The Buzz. "Local and state government budget cuts are the big wild card. That could make it more difficult for the economy to keep growing."
Of course, that’s not a foregone conclusion. But Derrick is hardly alone — a lot of people think that, absent inflation, and absent an economic recovery, there is no need for the Federal Reserve to raise rates. If rates remain low, so too will certificate of deposit rates.