How Low Can CD Rates Go? 116 Years to Double Your Money?
Every time we think CD rates have bottomed, we see more rate cuts. The latest round of cuts came after the Fed's Mid-2013 pledge and its Operation Twist. Some banks and credit unions have responded quicker than others. ING Direct responded yesterday with CD rate cuts. Even though the savings and checking accounts have maintained competitive rates, it has been rare for ING Direct to offer competitive CD rates. That is certainly the case today. The new lower rates are low even by today's standards. All of the CDs with terms up to 2 years have a rate of only 0.60%. For terms of 30 months to 4 years, the APY is 0.90%. To break one percent, you now need a 5-year CD which has an APY of 1.10%.
ING Direct's 5-year CD APY is now only 10 basis points higher than ING Direct's savings account APY. I'm glad they kept that the same. The Orange Savings Account yield has remained at 1.00% since February.
Unfortunately, the Electric Orange checking account rates fell by 5 basis points. The top tier now matches the 5-year CD with a 1.10% APY. This requires a $100K balance. The $50K tier has a 1.05% APY, and below $50K, the rate is 0.20%.
I think ING Direct should consider rewriting their CD page. On that page they say "The Orange CD - Guarantee yourself a high yield" and "High Interest - Safe place to grow a nest egg".
So let's see how fast you can grow your nest egg with a 0.60% interest rate. If you want to double your money, it will take 116 years. How about the 5-year 1.10% CD? That's not much better. For that to double your money, you'll have to wait 70 years.
Of course the term high yield is relative. It's only high compared to what others are offering. However, many other internet banks are offering CD rates much higher than ING Direct as you can see in our rate tables for 5-year CDs and 2-year CDs (both links are set to show just internet banks).
Even if a bank's rate is higher than the others, there has to be a point in which the word "high" just can't mean high. At the very least when the yield is so low that you can't double your money in one lifetime, that's no longer high.