By  Mon Oct 1, 2012

CD Rates Report September 2012: Long-term Rates Take a Hit

Savers who prefer certificates of deposit (CDs) will be disappointed to see that long-term rates are falling. In September, the national average for 5-year CD rates dropped by 0.05% APY — a significant drop compared to other CD maturity terms.

The drastic reduction in long-term CD rates is easily seen as a response to the most recent announcement from the Federal Reserve. Following its September board meeting, the central bank said interest rates are projected to remain exceptionally low until mid-2015 — roughly three years from now. Additionally, the Fed unveiled an ongoing round of quantitative easing to further push rates downward.

In January, the Fed projection indicated that rates are expected to recover in late 2014.

“My colleagues and I are very much aware that holders of interest-bearing assets, such as certificates of deposit, are receiving very low returns,” said Fed Chairman Ben Bernanke in a September press conference. Bernanke insists that “American will ultimately benefit most from the healthy and growing economy that low interest rates help promote.”

Little room to fall

Chase, Bank of America and Citibank were some of the bigger banks that made rate cuts on many of their CDs in September. The 5-year CD rates from both Chase and Bank of America were slashed by 0.05% APY, down from 0.80% APY to 0.75% APY.

Other banks that have reduced rates on 5-year CDs include AIG Bank, Ascencia Bank, Ally Bank, Doral Bank Direct, Nationwide Bank and OneWest Bank.

Compared to the rate changes for 5-year CDs, the rate changes on other CD terms are minor. One possible explanation is that interest rates on shorter CD terms have dropped to a point where they do not have much room to fall — especially when high-yield savings accounts are considered. Given that short-term CD rates are just slightly higher than rates on savings accounts, savers may avoid CDs so that they have easy access to their money.

The table below shows the changes in national averages for CD rates from Sept. 1, 2012, to Sept. 30, 2012. The figures are based on data acquired from banks that are tracked here on MyBankTracker.

CD Term APY (as of 8/31/12) APY (as of 9/30/12) APY Change
6-Month 0.38% 0.38% 0%
12-Month 0.53% 0.54% +0.01%
24-Month 0.69% 0.68% -0.01%
36-Month 0.90% 0.88% -0.02%
48-Month 1.06% 1.06% 0%
60-Month 1.33% 1.28% -0.05%

We are likely to see these rates continue falling, as the Fed intended. Savers have several low-risk alternatives to CDs to prepare for the next three years of low rates.

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