Are rates on CDs expected to go up? Because they really don't make any sense right now.

[PingSpike]

Online savings accounts, with few restrictions on your money, pay at least 4.5-5% APY. CDs from some of these same banks and elsewhere don't pay anymore than like 5.35% APY. Why would I put money in a CD right now?

 

[lupi]

Originally posted by: PingSpike
Online savings accounts, with few restrictions on your money, pay at least 4.5-5% APY. CDs from some of these same banks and elsewhere don't pay anymore than like 5.35% APY. Why would I put money in a CD right now?

The same reason the bank that sells you that CD offers a APY of 1.2 on their saving accounts.

 

[FoBoT]

it has been that way for a while, why would it change now

 

[jlee]

Originally posted by: PingSpike
Online savings accounts, with few restrictions on your money, pay at least 4.5-5% APY. CDs from some of these same banks and elsewhere don't pay anymore than like 5.35% APY. Why would I put money in a CD right now?

You wouldn't.

 

[drinkmorejava]

I believe they're supposed to go down. And why put money in one. Well, for most people who have no clue what's going on, it makes rather good sense when the teller says "Hey, since the your money is just sitting in your savings account at .14% interest, would you be interested in putting it in a CD for 10 months at 5 percent.

 

[PingSpike]

So its because many people won't use/don't know about internet HYS accounts then?

 

[Double Trouble]

When you get a certain percentage on your savings, lets say 4.8% from hsbc or some other account, you are not guaranteed that rate for a period of time, it's just the current rate. In other words, next month you might be getting only 4.5% and the month after that you might get 4% etc. A CD rate is locked in for a certain amount of time. CD's can be attractive in times of big uncertainty about rates.

 

[Triumph]

You're forgetting that you need some variation in your porfolio. CD's are low risk backups for long term investment goals. Even if you are a high risk investor, you still need to have some security blanket - you decide what percentage of your portfolio that would be.

 

[Special K]

Originally posted by: Triumph
You're forgetting that you need some variation in your porfolio. CD's are low risk backups for long term investment goals. Even if you are a high risk investor, you still need to have some security blanket - you decide what percentage of your portfolio that would be.

How is a high yield savings account any different? It's not like you are going to ever lose money from one.

Also, what is the point of money market accounts? They typically have higher minimum opening balance requirements and lower interest rates than online savings accounts.

 

[PingSpike]

I wasn't really planning this as an investment portfolio. I was just thinking about putting my EF into laddered CDs.

 

[dullard]

Why? Because, recently inflation soared down and the GDP growth did too. The Feds are concerned primarilly by inflation, which is only 2.7% (comparing latest data to last year at that time) and below historical levels. So, they can cut interest rates and inflation won't be too bad. Also, their secondary goal is to maintain a growing economy. But at 0.7% growth, the economy isn't doing too hot. It isn't awful, but it could use a shot in the arm from lower interest rates.

So both of their goals will allow for the Feds to cut interest rates. If interest rates go down, then your online savings account will eventually reach 3%-4%. All while the CDs stay at ~5.35%. That is why you might want to get a CD.

Of course, the Feds may very well NOT raise interest rates, so it is always a gamble.

 

[PingSpike]

Originally posted by: dullard
Why? Because, recently inflation soared down and the GDP growth did too. The Feds are concerned primarilly by inflation, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt">which is only 2.7%</a> (comparing latest data to last year at that time) and below historical levels. So, they can cut interest rates and inflation won't be too bad. Also, their secondary goal is to maintain a growing economy. But at 0.7% growth, the economy isn't doing too hot. It isn't awful, but it could use a shot in the arm from lower interest rates.

So both of their goals will allow for the Feds to cut interest rates. If interest rates go down, then your online savings account will eventually reach 3%-4%. All while the CDs stay at ~5.35%. That is why you might want to get a CD.

Of course, the Feds may very well NOT raise interest rates, so it is always a gamble.

Ok, that certainly makes sense for longer term CDs, 2-5 years. But I've been looking at 3-9 month ones. The rates make sense on most of the sites I've seen based on that logic...they peak out at 9 months or 1 year and then the APY starts to go down on the longer terms. But I still feel like the difference between those shorter term CDs and HYS accounts should be more pronounced, it doesn't even seem worth the extra hassle to put money in the a 9month CD versus just leaving it in a HYS for that time.

I hadn't really thought of them as an investment in that way though, betting on rates, so that does shed some light on the subject.

 

[dullard]

Originally posted by: PingSpike
Ok, that certainly makes sense for longer term CDs, 2-5 years. But I've been looking at 3-9 month ones. The rates make sense on most of the sites I've seen based on that logic...they peak out at 9 months or 1 year and then the APY starts to go down on the longer terms. But I still feel like the difference between those shorter term CDs and HYS accounts should be more pronounced, it doesn't even seem worth the extra hassle to put money in the a 9month CD versus just leaving it in a HYS for that time.

I hadn't really thought of them as an investment in that way though, betting on rates, so that does shed some light on the subject.

I think the rest of the difference is overhead. Banks that you see have to pay for the rent, utilities, and employees that at times sit around doing nothing at dozens or even hundreds of locations. Online sites have much less (if any at all) of those expenses. So of course online banks will be able to give more interest.

As long as you are willing to take a small interest rate hit and you are willing to deal with the minor hassles of being online at a high yield savings, then go ahead and do it. Hopefully, more and more people learn to do the same.