By  Fri Aug 31, 2012

CD Rates Report August 2012: Rate Drops Follow Foretelling Fed Minutes

After a few months of little movement, the national rate averages for certificates of deposit (CDs) fell slightly in August. Perhaps the statements from the Federal Reserve, saying that new measures could be taken to push interest rates down even further, played a role in the rate drops.

In August, for CD terms of 24 months and longer, national rate averages fell by at least 0.02% APY. Rate averages for shorter CD terms did not experience any change, possibly because they have little room to fall anymore when many online savings accounts offer highly competitive rates.

And CDs with longer terms may drop more in coming months.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the Fed board said in minutes that were released after its July 31 – Aug. 1 meeting.

The Fed reiterated that interest rates are projected to stay extremely low until late 2014. Rates on deposit accounts had fallen steadily since the financial crisis, but they recently appear to have stalled. If the Federal Reserve pulls the trigger on another round of quantitative easing, lending rates are likely to fall even further — which means savings rates will follow suit.

In the last two weeks of August, some banks that have made significant cuts to their longer-term CD rates include Bank of America, Citibank, USAA Bank, Barclays, Valley National Bank and Ascencia Bank.

If savers prefer to use CDs to build their savings, it would be wise to avoid CD terms of greater than 24 months, because rates could rise in late 2014. Savers may also consider Series I savings bonds as an alternative to CDs. Purchases of I-bonds before November will yield at least 1.11% APY if they are redeemed after one year.

The table below shows the changes in average national CD rates from July 31, 2012 to Aug. 31, 2012. The figures are based on data acquired from banks that are tracked by MyBankTracker.

CD Term APY (as of 7/31/12) APY (as of 8/31/12) APY Change
6-Month 0.38% 0.38% 0%
12-Month 0.53% 0.53% 0%
24-Month 0.71% 0.69% -0.02%
36-Month 0.92% 0.90% -0.02%
48-Month 1.10% 1.06% -0.04%
60-Month 1.35% 1.33% -0.02%

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