Another Fed Rate Cut – Time to Load up on CDs?

Published on October 29th, 2008
Modified on February 5th, 2009 - 9 Comments
Filed under: Banking, Carnivals

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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9 Responses to “Another Fed Rate Cut – Time to Load up on CDs?”

1. 1
   That One Caveman Says:
   October 29th, 2008 at 5:29 pm

   I thought about the same when I read about the cut. A local bank is advertising rates higher than ING Direct on their signage, but ING Direct is so much more convenient since I already have my money there. I might move my tax and insurance escrow into a 6-month CD so it earns a bit more.

2. 2
   Curt Says:
   October 30th, 2008 at 9:42 am

   I don’t think the fed rate will be able to control the CD rate much longer, as cash it too valuable to banks that have lost a lot of money. Soon CD rates will be at 12% and the fed rate will be 0%.

3. 3
   FFB Says:
   October 30th, 2008 at 10:45 am

   That’s exactly what I did yesterday. When I heard the Fed cut confirmed I went and bought CD’s from ING. I gotta do what I can to keep the rates up on my savings.

   As for what Curt is saying, the Fed doesn’t control CD rates. Banks just tend to move their rates in the same direction as the Fed. The whole point of the rate cut is to make money more free-er. It’s an incentive to use the money in other ways besides saving. Yes they take the money the get from CD to lend out but they do far more lending and borrowing between banks than they do with what they get from CD’s.

4. 4
   Miss m Says:
   October 30th, 2008 at 11:35 am

   I got one of the ING CD’s on Tuesday knowing the fed was cutting rates. It was super easy since I had money in ING savings already, I highly recommend. Have any of the online banks dropped their rates yet??

5. 5
   Nabloid.com Says:
   October 31st, 2008 at 10:50 pm

   CD’s only make sense if they offer a higher rate than the REAL rate of inflation…

6. 6
   nickel Says:
   November 1st, 2008 at 12:49 pm

   Nabloid: Not entirely true. If you need to retain semi-liquid assets, then CDs make sense if their rate of return is higher than other such instruments. Sure, the stock market promises a higher expected return (on average), but… If you need the money in a year, you’d be a fool to put your money there. But if you were planning on letting that money sit in the bank for a year, why not lock up a higher rate in a CD?

7. 7
   Nabloid.com Says:
   November 1st, 2008 at 5:56 pm

   True nick, there is that aspect! It is very situational. In most cases, I’d stay away from CD’s with a ten foot pole and would rather people pay off their loans if they have some. For those lucky people that have no loans the situation is much different. Unless people are planning on using that money in the short-term, CD’s just don’t make sense to me… personally (it’s situational! Different for everyone.)

   I just don’t think it’s a good idea when people start investing their money in revolving CD ladders indefinitely as purely an investment vehicle for long-term “safety” (and not for the reason that they need the money in a year or two). My reason for this hatred of CD’s being used as a long-term investment is due to the REAL rate of inflation versus the interest rate offered… which only guarantees losing value in many cases over a long period of time. If you need semi-liquid assets available in a safe manner in the short-term, then by all means, CD’s are an excellent tool! // IMHO

8. 8
   Nick Says:
   November 3rd, 2008 at 8:39 pm

   CD ladders are an awesome way to put away and grow your money, especially with this news, if you’ve already got an ‘emergency fund’ in place. You’re going to have access to at least some of your money every six months, and during that time you’ll be earning a much better interest rate than high yield savings accounts.

9. 9
   Mike Lai Says:
   July 10th, 2011 at 6:59 pm

   Looking back, don’t you wish you would have put a bunch of money in a longer term CD? Good call and great article!