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

Written by Nickel - 9 Comments

Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays.

Consider yourself warned… The Federal Reserve just cut interest rates by another 0.50%, meaning that it’s just a matter of time until the interest rate on your online savings account drops. Again. If you have extra money sitting around, now might be a good time to think about locking in a decent rate of return by purchasing CDs.

As I write this, ING Direct is offering 4.25% APY on 12 months CDs. This is actually quite competitive, and you can’t beat the convenience if you already have money deposited with them. You might also want to look at Jim’s updated list of certificate of deposit rates, which lists the top rates for CDs in the 6-18 month range.

And while we’re on the subject of CDs, be sure to check out my previous article on building a CD ladder. It takes a bit of time, but it’s definitely worth the effort if you want to maximize your returns.

Published on October 29th, 2008 - 9 Comments
Filed under: Banking,Carnivals

About the author: 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!

Comments (scroll down to add your own):

  1. 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.

    Comment by Anonymous — Oct 29th 2008 @ 5:29 pm
  2. 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%.

    Comment by Anonymous — Oct 30th 2008 @ 9:42 am
  3. 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.

    Comment by Anonymous — Oct 30th 2008 @ 10:45 am
  4. 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??

    Comment by Anonymous — Oct 30th 2008 @ 11:35 am
  5. CD’s only make sense if they offer a higher rate than the REAL rate of inflation…

    Comment by Anonymous — Oct 31st 2008 @ 10:50 pm
  6. 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?

    Comment by Nickel — Nov 1st 2008 @ 12:49 pm
  7. 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

    Comment by Anonymous — Nov 1st 2008 @ 5:56 pm
  8. 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.

    Comment by Anonymous — Nov 3rd 2008 @ 8:39 pm
  9. Looking back, don’t you wish you would have put a bunch of money in a longer term CD? Good call and great article!

    Comment by Anonymous — Jul 10th 2011 @ 6:59 pm

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