The BankingMyWay CD rate board shows a predictable response to the Federal Reserve’s recent announcement of "QE 2", a $600-billion stimulus program for the U.S. bond market that represents a second round of so-called quantitative easing to help the economy.
But suffice it to say that the bank interest rate market responded naturally to a massive government program designed to keep interest rates down – they fell like a stone. Each of the five major CD rate categories slid backward, with the one year CD rate falling from 0.571% to 0.561%.
That’s got to be tough for bank investors. CD rates are already at historic lows just as the Federal Reserve embarks on a plan to pour $75 billion every month through June 2011 into the bond market to keep prices high and yields low and the economy growing. The Fed hopes that the cash bonanza will stimulate banks into lending more, and will wake up the moribund U.S. consumer.
The Fed has tried this before – in 2009 and early 2010 – when it poured $1.3 trillion into the U.S. mortgage market. But any casual observer knows that the strategy bore little fruit, as banks placed a Vulcan death grip on loan funding and consumers hunkered down with macaroni-and-cheese dinners on Saturday nights instead of going to the mall, or out on the town for cocktails and a bite to eat.
So you’ll have to forgive bank savers if they’re not buying what the Federal Reserve is selling.
Sure, there are some decent deals out there right now. You can get a five year CD with a 3.00% and up rate at Melrose Credit Union and a two year CD rate of 2.25% from iGObanking. Those rates compare well to average rates in each category (1.612% for the five year CD and 0.844% for the two year CD, as measured by the BankingMyWay Weekly CD Rate tracker).