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The Economy, Interest Rates, CD Rates, Savings Account Rates and Mortgage Rates

The Economy, Interest Rates, CD Rates, Savings Account Rates and Mortgage Rates

The recent budget talks between Republicans and Democrats in Washington over the budget and raising the debt ceiling limit didn't help investor confidence at all. A more important fact is the economy started to slow down as business and individuals stayed on the sidelines when it came to spending and investing. As a result the economy looks more and more like it contacted in the 3rd quarter of 2011.

All this bad news and the Feds decision to do the twist, force shorter term bond yields higher and longer term bond yields lower as forced CD rates, savings account rates and mortgage rates lower. If you're searching for deposit rates you probably have seen lower bank CD rates and bank savings account rates. If you have been searching for mortgage rates I'm sure you have seen today's mortgage rates on 30 year conforming loans hit an all time low this past week.

Don't expect interest rates to increase anytime soon. The economy continues to grow a very slow pace, to slow in fact to bring the unemployment rate down. A higher unemployment rate will keep wage pressures down which will keep inflation down. Low inflation will mean low interest rates on certificates of deposits, savings accounts and mortgage loans.

If you're new to certificate of deposit (CD) investing you might be wondering what a CD is. Investing in a CD is one of the safest investments an individual or business can make. What determines most CD interest rates are what prevailing interest rates are doing at the time. Most CDs have a fixed CD rate but some CDs have variable rates and some are tied to indexes.

A typical CD account is like a savings account, you're principal is 100% safe and guaranteed by the government (FDIC) as long as you keep your CD deposit amount under $250,000. Now that you have a good general understanding of what CDs are, how they fuction and what are obligations are when investing in a CD you should now go out and try to find the best CD rates available. 

When you search for the highest CD rates you should also make sure to compare the same maturity dates. For example, compare a 1 year CD rate with another 1 year CD rate. Check to make sure if the CD is non-callable or callable, which basically means the bank and force you to cash in the CD before the maturity date.

A bank might call a CD if interest rates tumble in a short period of time. If you invest in a variable interest rate CD account, then your CD rate will be affected by lower interest rates as well but you would benefit when CD rates move higher as well.

Since interest rates are near record lows and the economy is less than rosy what should you do? I would stick to investing in shorter term CD accounts at fixed rates. Investing in a savings account subjects you to a change in interest rates at anytime. At least with a CD you know how much the interest rate is and how much money you are going to earn on your investment.

Author: James Martin
September 30th, 2011