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Friday, October 27, 2006

Is it time to lock in interest rates?

Earlier this week, the Fed's left the federal funds rate unchanged in their meeting. The federal funds rate basically is the interest rate at which banks lend to each other for overnight loans, and determines the market interest rate. This rate influences the interest rates that banks set on the savings accounts, CDs and so forth.

With the possibility of slowing economy on the horizon, I think Fed's are either not likely to increase the discount rate in the near future, or even if they do, they are likely to increase it another one or two times. So am thinking of locking in the current rates in some CDs just in case the Feds decide to start cutting the rates in the near future.

I checked the BankRate.com site but didn't find decent rates; even for a 5-year CD, the rates were below 6%. Fortunately, I have an account with Digital Federal Credit Union (DCU) and noticed they have a 16-month CD with an APY of 6% (dividend rate of 5.83%). So am planning to open the CD as the rate is good, has low $500 requirement to open the account, and the period of 16 months is decent.

posted by Ruby @ 8:04 AM

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