Dedicated to Deposits: Deals, Data, and Discussion

Fed Cuts Rates by 25 Basis Points - The Last Rate Cut?

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As expected, the Fed cut the funds rate by 25 basis points to 2.00%. There was also an expectation that the Fed would provide a clear signal that it intended to pause before cutting rates further. However, there was no such clear indication. As this New York Times article describes, there are two parts in today's Fed's statement that suggest a pause may occur: "uncertainty about the inflation outlook remains high" and "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity."

So the bad news for savers is that we'll probably see some more cuts in savings account rates in the next week or two. Hopefully, this will be the bottom. However, as this Fortune article describes, there's a chance that a "grinding slowdown may soon put Bernanke back into easing mode."

I looked back at my post after the last Fed rate cut, and noticed that I had expected most savings account rates to below 3% by today. That did not happen. Most online savings account rates have held at 3% or above. With only a 25-basis point cut today, maybe we won't see much reduction, and as I mentioned in this post, CD rates are starting to rise.


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Comments
15 Comments.
Comment #1 by Anonymous posted on
Anonymous
Wow CapitalOne Raised their long term jumbo by 25 basis points . I`m jumping on it. 5.75apy for 120 months....

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Comment #2 by Bozo (anonymous) posted on
Bozo
To: All

It's basically a wash. Borrowing rates go down, lending rates go down. Now, there is a tad of "stickiness" here. Everybody tries to catch the bottom (or, the top). Folks who want your money (issuers of CDs) tend to try to catch the bottom by offering slightly higher rates than the competitors, so they catch the bottom by bidding up, but for "stickier"(longer) terms. Same with lenders (notice how DiTech's rates have bounced all over the place the last month?).

My humble advice. Don't worry, be happy, diversify, and ladder out your CDs (and your indebtedness, if you have any). It all irons out in the wash (goodness, is that a grandmother's expression?). Remember, anything over 5% (I'm referring to CDs and yields here) is a gift. You take out 4%, you make 5%. It's a no-brainer.

Yours,

Bozo

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Comment #3 by Edward (anonymous) posted on
Edward
Wow! The Capital One 5.75% APY sounds nice.

Important question, maybe someone can answer:

With a 10-Year Capital One Jumbo CD, can one take out the interest earned without penalty?

Obviously, if one withdrawals the principal, there can be a big penalty. But what about having the interest paid and then being able to spend the interest? Is that allowed? If yes, can it be done monthly? At any time?

Of course, if one decides to spend the interest earned, one won't earn 5.75% APY. The rate would then be 5.59%, which is still excellent.

Thank you.

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Comment #4 by Anonymous posted on
Anonymous
I would also like to know if Capital One will allow you to take out your interest every month.

I would also add the following questions I'd like answered to the ones above asked by Edward:

Will Capital One allow you to put beneficiaries on the CD so you can get more than $100,000 FDIC insurance?

Is interest paid monthly or quarterly?

If interest is paid monthly and if you can withdrawal the interest, can you have it automatically go into the Capital One Savings Account, which is currently paying 3.75% APY?

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Comment #5 by Anonymous posted on
Anonymous
Yes and Yes.I opened a jumbo with my wife and POD to my two children . Cap One even connected me to the FDIC so I could ask questions(no wait),I should be insured to 300K.
I opened a High Yield Checking too. and am having the 1k a month (interest)transferred to this account so i can by gasoline.

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Comment #6 by Michael (anonymous) posted on
Michael
Here in Orange County, California, that $1,000 per month in interest would not cover the cost of gasoline.

Funny stuff.

Thanks for answering. Yes they allow one to have the CD POD to increase insurance, and yes one can take their interest out monthly.

A $200,000 CD would provide nearly $1,000 per month in interest...taxable, as you know.

Not bad, especially in today's environment.

It might not happen in 10 years that the 10-year interest rate climbs to 7%, which I think would be the rate it would have to hit for one to be sorry they locked up their money for 10 years at 5.59%.

Opinions will vary, of course.

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Comment #7 by Anonymous posted on
Anonymous
I would not be locking in any rates longer than 2 years. The Fed will find itself in a position to drastically raise rates in the not too distant future. My opinion of course.

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Comment #8 by Anonymous posted on
Anonymous
Greetings to all.

The Capital one Cd sound Interesting .
My guess is CD rates will even off and remain flat for close to two years.
With this in mind I need to invest $100,000 .
Reading this blog you know National city Has 4 year CD at %5.
I'm not a big fan of the Stock Market so this is the best I could come up with .
Any thought 's on this Move .
I do have other cds ( patelco ) and do not need the money right now.

Is %5 a bad rate for a 4 year Cd ?
I figure I would open a $83,000 CD at National staying under the fdic limit with interest in mind.

Any thoughts .

Thanks

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Comment #9 by Michael (anonymous) posted on
Michael
It's not necessarily a bad rate, but as you know, everything is subjective.

Let's assume the Fed is finished with the rate cuts.

One can get 4% APY Savings Account at Alliant CU. That equals $1,000 per year in interest vs. the 5% CD. One might think that is an acceptable loss to not have to be locked in for 4 years in a CD, with the expectation that the Alliant CU rate will increase closer to the 5% CD rate in that 4-year period.

Then there is the person that will be satisfied with the 5% return and not get upset should interest rates increase.

So, if you feel 5% is a decent return and you can be happy no matter what happens with rates in the next 4 years, you should go for the CD.

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Comment #10 by Michael (anonymous) posted on
Michael
To Calirify: Of course I meant to write "a $1,000 loss in interest over the 5% CD if one buys a $100,000 CD."

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Comment #11 by Anonymous posted on
Anonymous
To the person who asked about a 4yr CD @ 5% with National City.

I think it is a good deal in this low interest rate envirement which we seem to be stuck with for a few years. Infact, I took one out with them for $100,000 in a Joint Acct just a couple of months ago.

Capitol City seems to be on shaky ground just now, but things could improve. If they get worse and Capitol City does fail, the FDIC will cover the deposits as long as they do not go over their limits.

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Comment #12 by Anonymous posted on
Anonymous
Thanks for the reply.

I've never taken out a CD longer then 18 months so sorry for back peddling and asking for input.
%5 isn't all that bad and it is insured.
staying under the $100,000 with interest in mind I fell it may be a very safe and smart investment.


thanks Again

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Comment #13 by Anonymous posted on
Anonymous
I would not go out past 24 mo's on cd's. Staying at 1 yr is better. Rates [in my opinion] are headed up. There is a number in the I Bond post that should scare the shorts off of all of us. If the Gov admits inflation rate is 4.84 % it is probally closer to 6%. But for this post lets assume the Gov is correct [it would be the 1st time]. I live in Illinois where state income tax is 3% and I pay 25% Fed income tax. If I could find a cd paying 6.73 % and then pay my taxes at the end of the year I would have 4.84 left. Does anyone need a calculator to figure out how much money I made. One should always consider taxes and inflation when making any investment in cd's ,bonds, stocks, and etc.

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Comment #14 by Anonymous posted on
Anonymous
i kicked myself five years ago i could have locked in at cap 1 for 5.65% ,i did eventually get 6% at penfed.I would not be afraid to lock in at 5.75% for 10 years.If all you need is the interest income.

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Comment #15 by Anonymous posted on
Anonymous
where do i get 5.75%.for 10 years.

any help would be great.

thanks

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