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CD Rates are so Low, What Should I do?

CD Rates are so Low, What Should I do?

In years past when a certificate of deposit matured you just let the deposit roll over into a new CD with the same term. CD rates were higher back then and while bank CD rates did fluctuate at least you got a return of 3% to 8% depending on the CD term. If you have a long term CD coming due you're going to be in for a shock. These days CD rates at banks and savings account rates are so low the highest CD rates on 1 year CDs are just above 1.00% about the same for savings accounts.

1.00% for a 1 year CD isn't much of a return,if you have $20,000 to invest for a year you'll only earn $200 in interest. That isn't much money especially if you're a retiree trying to live on social security and invest income from CDs. Even if you're not a retiree and just want a safe investment these days since the equities markets are so volatile.

While the best CD rates are nothing to write home about rates are a lot higher than U.S. Treasury yields. Current 1 year Treasury yields are at a measly 0.09% for a 1 year Tresury. Compare 0.09% to 1.00%, current CD rates are starting to look a lot better.

CD rates have been historically low since the Federal Reserve has kept interest rates low to help reinvigorate the economy. While low interest rates have been very good for borrows since today's mortgage rates and auto loan rates are so low if you're a saver you're out of luck.

The inflation rate, excluding food and energy prices, has been low your return on your CD investment is better than you think. Factor in food and energy prices and the inflation rate is much higher, you're actually not even staying ahead of inflation.

What should I do since CD rates are so low? There isn't anything you can do to get a better return if you want to protect your principal investments. You can invest only in shorter term CDs so when CD rates finally start going higher you're not lock into some long term CD with a pathetic interest rate.

Author: Robert Till
September 18th, 2011