Dedicated to Deposits: Deals, Data, and Discussion

Fed Cuts Rates to 1% - Future Savings Account and CD Rates?

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As expected, the Fed cut the funds rate by a half-percentage point to 1%. The last time it was this low was back in 2003 and 2004. According to this CNN article it has never been lower.

From the policy statement, the FOMC made it clear it's much more concerned about the slowing economy than inflation. The vote for the rate cut was unanimous. Even the committee member Richard Fisher who has been an inflation hawk, voted for this policy action.

Economists quoted in the CNN article are mixed on whether we'll see cuts below 1%. One said that the unanimous vote signals that they're not done in lowering rates especially if the economy continues to weaken. Other economists see the rate cut as useless in helping the economy since banks are unwilling to lend.

Competition among banks has kept interest rates up this year as described by this BestCashCow article. Hopefully, this will keep pressure on the banks to keep rates from falling. But with the funds rate at only 1% and with continued economic weakness, I'm afraid we should expect some declines in savings account and CD rates.


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Comments
14 Comments.
Comment #1 by Anonymous posted on
Anonymous
Another fascinating article, thankyou. I will be using it in my coursework and also referencing http://www.thefinanceowl.com/ analysis. Please keep up the great work.
Maggie

1
Comment #2 by Anonymous posted on
Anonymous
The continued Fed rate reduction is scaring me on the future rates of CD's. The forecast that I check on occasion, although it's a month old, seems to be telling me this is all bad news for us savers. Check it out at http://www.forecasts.org/interest-rate/6-month-cd-rate.htm

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Comment #3 by Anonymous posted on
Anonymous
I get 2.25% on Online Bill Payment from HSBC and a linked 3% Online Savings to a linked Countrywide 3.40% with fast transfers.

I have best of all worlds. Now HSBC is outperforming Schwab and I will stay with HSBC for life.

HSBC is my Bank bar none for mainstream banking with Countrywide as the secondary.

TDBank has a lot to do before it could match HSBC in terms of online banking and that includes high rates instead of ATM Fee rebates because in todays economy, I use a credit card and not cash.

TDBank and HSBC are competitive. Chase has horrible rates and the ATM advantage is lost with TDBank now which has no fee atms from anywhere. Citibank is down in the dumps and I don't trust them financially. Bank Of America is great with Countrywide division and Bank Of America has specials at times but it remains unclear if it will keep up.

I know this is for NYC Metro mostly since I only know the banks in my region.

With HSBC, TDBank and Countrywide one can't go wrong as these are the best banks bar none.

Maybe someone can answer this but with Chase since rates are low, is there any advantage now to using them considering TDBank has no ATM FEE anywhere? Are there any perks which really make Chase worthwhile anymore?

These are the banks which have the clout now for NYC Metro for LOCAL banks.

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Comment #4 by Bozo (anonymous) posted on
Bozo
To: All
Re:Interest Rate Cuts

Not much we can do about it, but it's disheartening to see the Fed once again prefer borrowers over savers.

Oh, well, glad I locked in those 5%+ CD rates when the locking was good.

My wife always wondered what I was doing with 5-10 year CDs. She's not questioning me now.

We're talking retirement funds, folks. The Fed is killing seniors who have short term CDs and rely on them for interest income.

As in, "what income?"

Bozo

1
Comment #5 by gaelicwench (anonymous) posted on
gaelicwench
Why does the Fed keep lowering the rate? When people go in for a loan or a business owner needs to expand or improve, he's not able to get a loan. The money that went to the financial institutes should then press the banks to approve loans; but they're not. They've become so gunshy of loaning money because of the worry of the consumer not paying back the loan.

People now are more interested to save and invest using safe investment vehicles such as savings accounts and CDs. What's the point in that if the rates are simply to low to make it worth it. Others need to recover what they basically lost of their retirement portfolios. Any bet they're now gunshy? True, others yet aren't in a state of panic, including yours truly, because the market usually turns around in the following months.

So, being one of those who wants to save, it's rather disconcerting to see the banks where I have my accounts lower their rates even more.

I'd like to believe this will be short-term; so why am I apprehensive?

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Comment #6 by Anonymous posted on
Anonymous
EverBank has reduced its 3-month-guaranteed rate to 4.65% from 4.76%. (I'm not sure if this happened before or after the Fed rate cut.) https://www.everbank.com/

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Comment #7 by Anonymous posted on
Anonymous
Suggest some of you folks with brokerage accounts to look at the highest quality AAA rated Corporate Bond such as General Electric and well-rated IBM with 1-3 yr. maturities. Rates are well above 5%

Even without FDIC, these companies are very safe and not going out of business. Consider Fannie & Freddie bonds as they are owned by the government making them just as good as any bank with FDIC.

Keep it short with the maturities as the bond mkt is pricing in future inflation in the longer-term maturities.

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Comment #8 by Foster (anonymous) posted on
Foster
Dear GaelicWench,

The U.S. Government doesn't care about the saver who just wants to invest his or her money with FDIC insured safe Savings accounts or CD's.

The Government wants the stock market to go up. If the market goes up, the public perception is that the economy is good. If the stock market crumbles, the media is all over it, and the fear is on.

It is always the stock market first. We have to worry about the stock market.

The government thinks if interest rates are so poor at a bank, people will invest their money in stocks.

Many financial prognosticators are saying the Fed Funds Rate will be cut yet again down to .5%, and maybe even lower after that. And the low rates might stay that way for a year or two.

If in the future there are no more desperate banks, there will be no bank willing to offer over 3% on a savings account.

1
Comment #10 by BloggingBanks (anonymous) posted on
BloggingBanks
That's an interesting article

1
Comment #11 by Geoff (anonymous) posted on
Geoff
I just can't wait until the rate goes negative.

1
Comment #12 by Bozo (anonymous) posted on
Bozo
To: Geoff
Re: When rates go negative

Technically, we will have to pay banks to keep our money, so as to be safer than mattresses.

Safety deposit boxes . . . fees

CDs . . . you gotta be kidding

Interest-bearing anything . . .no way

Welcome to the world where it does not pay to save. Regrettable, but true.

Bozo

1
Comment #13 by Anonymous posted on
Anonymous
We savers need a political "lobbyist".

1
Comment #14 by Anonymous posted on
Anonymous
This is for Foster and all the other "us savers" on here that **** about stocks but don't have the guts to buy a share. It was the Banks that brought the stock market down not the stock market bringing the banks down. Several posters here talk about investing in CD"S. To me I consider a CD only an agreement or contract and certainly not an investment. Anyway, the returns we get from our money is usually limited by the amount of risk we are willing to take. Bozo, maybe your wife questions your buying your 5% 5 and 10 yr cd's because with taxes and inflation you have a guaranteed loser there. Rates go up and rates go down and always have and always will. Hint, ever look at AAA corporate bonds, or muni bonds. How about Fannie and Freddie bonds as they are guaranteed by Fed gov now. Happy saving to all

1
Comment #15 by Anonymous posted on
Anonymous
Here are some High-quality AAA Corporate Bond rates:

GE 12/2009 4.4%
GE 12/2010 6.1%

Plus, look at bonds from the so-called "fortress banks", the banks which the feds will always bailout:

Bank America, Wells Fargo 6/2010 5.9%), & JP Morgan 10/2009 5.1%

Also, co's like Walmart are just as safe as any bank.

Put your $$$ where the gov't is throwing our taxpayer's money at and the risk is minimal, even without the piece of mind of FDIC.

Keep the maturity dates short from 1-3 years.

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