CD rates are barely budging

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There’s a webcam on the Internet where you can watch paint dry and grass grow.

Another one for watching CD rates would fit right in.

Over the last 12 months, average returns on certificates of deposit have remained essentially unchanged, barely budging from their record lows.

The good news is that the long-term steadiness indicates rates have hit bottom, said Greg McBride, senior financial analyst at interest rate tracker Bankrate.com in North Palm Beach, Fla. “That’s little consolation to savers who have been waiting a long time for improvement,” he said.

Yields on one-year CDs averaged 0.23 percent nationwide last week, Bankrate.com said. That compares with 0.23 percent in January and a nearly identical 0.24 percent one year ago.

Meanwhile, yields on five-year certificates were averaging 0.79 percent last week vs. 0.79 percent in January and 0.78 a year ago.

PG graphic: Many unhappy returns
(Click image for larger version)

By comparison, savers were earning an average of 3.77 percent on one-year certificates and 4.02 percent on five-year CDs in August 2007 — the peak just before the economy began to buckle and interest rates started a relentless six-year slide.

CD rates have been stagnant locally, too.

The top 10 banks in the Pittsburgh region were paying an average of 0.08 percent on a six-month certificate last week, unchanged from 10 months ago, according to a Pittsburgh Post-Gazette survey. The average yield on a one-year CD also was unchanged at 0.14 percent, while the yield on a five-year certificate edged up to 0.83 percent last week from 0.77 percent in the newspapers last survey in September.

The outlook for deposit rates the rest of the year is for more of the same, Mr. McBride said. “There will be no deterioration, but no perceptible improvement, either,” he said.

With the Federal Reserve pledging to hold the federal funds rate at record lows into the middle of 2015, it will be some time before savers see any meaningful upturn, Mr. McBride added.

Yields on longer maturities, such as five-year CDs, could inch up later this year if the economy continues to improve. But the gains would be “nothing to write home about,” he said.

PG graphic: Going nowhere
(Click image for larger version)

Meager returns on bank deposits underscore the need to have a diversified savings portfolio beyond federally insured cash investments, including dividend-paying stocks, bonds (including municipal, inflation-indexed and floating-rate bonds) and real estate investment trusts, Mr. McBride said.

No matter where interest rates stand, the best way to maximize CD yields is to shop around, he said.

Nationwide, the top-yielding one-year CDs at federally insured institutions were paying 1.1 percent last week vs. the national average of 0.23 percent.

“It won’t blow anyone’s hair back, but it’s a nearly fivefold increase from what you would get if you settled for average,” Mr. McBride said.

The highest-paying six-month certificates currently top out at about 1 percent, a nearly sevenfold increase compared with the national average of 0.15 percent.

Besides comparing rates on standard CDs, savers should ask about special deals. Banks periodically offer higher promotional rates when they want to attract deposits.

Locally, for example, ESB Bank is offering a seven-month promotional CD yielding 0.50 percent, which is more than double the 0.20 percent the bank is paying on a regular one-year certificate.

Many banks also offer other ways to earn higher returns, such as bonus rates for customers who maintain a checking account with the institution or have large balances.

At PNC, for example, customers with at least $25,000 and a preferred direct deposit account can get a 13-month promotional CD yielding 0.65 percent compared with the 0.13 percent PNC is paying on a regular one-year CD. At Citizens Bank, customers with $1,000 and a Circle Gold account can earn 0.75 percent on a special 14-month CD versus 0.05 percent on a regular one-year certificate.

Don’t overlook savings and money market accounts, which can pay the same or more than a CD and provide the added benefit of extra liquidity.

At Dollar Bank, for instance, customers with FreeMoney savings accounts earn 1.05 percent annual interest on deposits of up to $20,000.

Mr. McBride said savers with CDs coming due should avoid locking in for the long term so they have the flexibility to invest should rates head higher.

“I don’t see any appeal in longer maturities right now,” he said. “You are marrying yourself to a return that will not keep pace with inflation.”

To help locate the best yields nationally, visit www.bankrate.com and www.bauerfinancial.com.


Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066.

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