Why Are CD Rates So Low?

by CD Rates on July 6, 2010 · 1 comment

in Articles

Why are CD rates as low as they currently are?  One reason is definitely because the influence of the Federal Reserve on CD rates.  The FED rate is currently between 0.00 – 0.25% and is a massive component that determines a CD rate.    Another not widely known reason is the recently imposed FDIC rate cap that started January 1st 2010.  In the May 29th, 2009 FDIC meeting, it was determined a rate restriction would be imposed on less than well capitalized banks.  Any bank that wasn’t well capitalized could not offer rates 75 basis points (otherwise known as 0.75%) higher than the national average.  Ironically, it could be said banks that run the risk of failure usually want to offer higher CD rates to attract more deposits to their bank.  As of this week the FDIC released the following averages, with rate cap.

Non-Jumbo Deposits

Deposit Products National Rate Rate Cap
Savings
0.20
0.95
Interest Checking 0.11 0.86
Money Market 0.29 1.04
1 month CD 0.19 0.94
3 month CD
0.31
1.06
6 month CD
0.47
1.22
12 month CD
0.73
1.48
24 month CD
1.17
1.92
36 month CD
1.50
2.25
48 month CD 1.72 2.47
60 month CD
2.03
2.78

Jumbo Deposits (≥ $100,000)

Deposit Products National Rate Rate Cap
Savings
0.20
0.95
Interest Checking 0.11 0.86
Money Market 0.44 1.19
1 month CD 0.20 0.95
3 month CD
0.32
1.07
6 month CD
0.50
1.25
12 month CD
0.76
1.51
24 month CD
1.20
1.95
36 month CD
1.54
2.29
48 month CD 1.76 2.51
60 month CD
2.06
2.81

Ironically no such rate cap currently exists for credit unions by the NCUA.  This is also the possible reason why the highest CD rates lately are mainly from credit unions.  Unfortunately many credit unions rates are not nationally available, and have sometimes restrictive membership requirements.  With our web site, you can find the best CD rates local to your area.

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