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Falling CD and Money Market Account Rates

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VirtualBank reduced rates on all of its CDs with terms of 6 months and longer. The 6-month, 9-month and 12-month CD APY fell from 5.60% to 5.15%. The APY of all of the longer term CD fell from 5.44% to 5.15%. The 3-month CD APY remains at 5.13%. The rates on the eMoney Market also remained the same at 4.60% for under $50K.

Capital One reduced rates on its money market account from 5.00% to 4.80% APY. The rate on the Costco version remained at 5.14%.

Future Rates?

VirtualBank's move followed many other banks in slashing long term rates. However, it also slashed the 6-month CD rate. With Capital One's rate drop on the money market account, short term rates now seem vulnerable. According to this article, the fed's latest rate pause and the weakness in US housing are pointing to a weaker economy. An economic professor thinks the US will experience a recession in 2007 that'll be worse than the 2001 recession. If that happens, this might be the last year of 5-percent-plus savings accounts or 6-percent-plus CDs for some time.
Comments
Anonymous
Anonymous   |     |   Comment #1
Yeah, its probably a good idea to lock up a high CD rate while they last, potentially even a longer term offer, because rates could drop faster as the economy stalls.

Not much you can do about Money Market accounts, but if anybody would like to take advantage of VirtualBank's $20 referral bonus offer, and get an extra $5 paypal from me for it, just email me for a referral:

trick3LL@yahoo.com
Bozo
Bozo (anonymous)   |     |   Comment #2
I will second trick's comments. Almost every economist interviewed of late on CNBC thinks the next Fed move (in 2007) will be to CUT. Some think the FedFunds rate could go to 4 (a 125 basis point drop). While that would be fantastic for my bond funds (value inverse to yield, and all that), it would be crapola for my MMF funds, which is why I have been buying long-term CDs hand-over-fist this past two weeks. "Know when to fold-em" and all that. I think the bull run on MMF rates is o-v-e-r, so I'd switch to longies as soon as possible.

Just my $.02

Yours,

Bozo