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Thursday, May 01, 2008

CD interest rates increase

The Wall Street Journal article talks about the increase in CD rates. Despite the Fed's 25 basis point cut yesterday, future interest rates are expected to inch higher as the Fed stops cutting interest rates to combat inflation.

According to the Journal article, several banks such as Capital One Financial Corp., Advanta Corp.'s Advanta Bank and E*Trade Financial Corp. have started increasing their CD rates.

The moves are consistent with the rise in Treasury yields in recent weeks, the absence of further bad news from the credit markets and rising concerns over inflation, says Greg McBride, a senior financial analyst at Bankrate.com. The yield on the five-year Treasury, for example, has jumped to 3.1% from about 2.6% since the beginning of April.

"Everyone's expectation of inflation in the future is increasing," says Larry Fuschino, a senior vice president at Wachovia. "What that does is make customers feel like they want higher rates for longer terms." Earlier this month, for example, Wachovia boosted the yield on a 60-month CD to 4.75% from 4.25% -- a rate it had been offering since mid-February. Prior to that, the rate had been at 2.8%.

KeyDirect recently raised rates on its longer-term CDs by 0.25 percentage point to 4.75% and 5% for its 60- and 84-month CDs, respectively. GMAC Bank LLC raised the rates last week on its four- and five-year CDs to 4.35% from 4% and 4.15%, respectively. Bank of America Corp. has also increased rates on a variety of CDs stretching out as many as 47 months.

Some banks are also raising some of their short-term CD rates. Earlier this month, for example, ING Groep NV's ING Direct raised the rates on its six-, nine- and 12-month CDs to 3.3%, from 2.75%, 2.5% and 2.5%, respectively. Meanwhile, IndyMac Bancorp Inc.'s banking unit is offering special one-year CDs online with a yield of 4.15%.

Personally, I am holding off on putting any new money in the CDs and sticking with the money market account. With the US currently having one of the lowest interest rates in the world, the US dollar is staying weak while the inflation is increasing. As a result, in my view, Fed will have to start increasing rates at some point to address the issue of inflation. So I don't want to put any money right now in the long term CDs unless I find a good promotional rate. Two good sites for finding about such information are:

Bank Deals
Bankrate.com

Bank Deals is one of the best and useful blog sites I have seen, and I like the fact that it's updated frequently with lot of useful info.

For complete article, see:

WSJ: CD Investors Start to See Higher Rates

Points.com eLearners Earn Rewards at MyPoints.

posted by Ruby @ 7:50 AM

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