If you happen to be a CD investment enthusiast of late, no doubt your levels of patience and optimism are being tested quite heavily with the dismal performance record of the past year or two. Developing and maintaining a coherent investment strategy is proving to be about as effective as simply rolling a pair of dice. If gloom and doom have been the bellwether of recent history, one wonders what the rest of 2012 may hold for CD rates. The answer morphing through most analysts’ crystal balls is, regrettably, just about the equivalent scenario for the most part.
The Federal Deposit Insurance Corp (FDIC) has tracked the national averages on CD interest rates, and has noted a marked decline across the whole spectrum during January of 2013. The only exceptions were the three month CDs, which managed to maintain a 0.14% position. Beyond that, decreases in all other rates went from 0.01% for one month CDs on up to 0.03% for five year CDs. This all points to the rather obvious conclusion that the investment atmosphere for CDs is anything but attractive as an investment vehicle. Therefore, there are certain key points to bear in mind when researching CDs to acquire in the prevailing market conditions.
Points to Remember
One month CDs make the least amount of investment sense, with the rates declining to a paltry average of 0.09%, and represents a significant below-average rate when compared to savings and money market accounts. Common sense certainly stipulates that CDs are a method for interest rate lock-ins to protect against decreases. However, this strategy rings a bit hollow for two reasons. The first is that nothing that close to the zero mark can move much lower, and, a single month worth of rate security is not much to write home about. The only other options to consider would be to seek a CD for a longer term and a higher rate of return, or, if tying up your funds for that long of a duration is not feasible, then perhaps a savings or money market account would be a wiser choice.
There is a bright side in the one year CD arena, which indicates a much higher premium offering for the jumbo CDs, if making a substantial investment of over $100,000 is in the realm of possibility. These CDs, for the one year term lock, are coming in on an average of 0.03% for the jumbos, as opposed to 0.01% to 0.02% premiums for most other term lengths.
Don’t Give Up
Doing all the necessary research and creative shopping is still very vital and prudent investment advice. The premise is to not become quickly discouraged due to the dismal condition of the interest rate atmosphere, and keep the motivation up and the inclination to abandon ship in check for the time being. Finding the rates as good as they were a few years back will be quite impossible, but some careful and diligent homework and research might yield a rate three to four times above the average mark if you keep at it with a bit of determination.
Be prepared for a bit of a shock if you happened to have a five year CD reaching maturity this year, since things appeared to looking far more lucrative five years ago, when interest rates on CDs were in far better shape. This means that the more prudent advice is to keep from automatically rolling over these CDs due to the radical changes taking place in the whole investment environment. While the strategy might have appeared to be somewhat brilliant half a decade ago, a long-term CD is not quite the wise investment choice any longer. Simply put, it seems that in this case, less just might be more in terms of logical choices. The shorter side of CD term length would be a smarter move.
Now more than ever, investing in CDs requires a reasonably good ability to evaluate the environment in today’s current market conditions, along with having an excellent sense of how future conditions will affect interest rates in the long-term, before making your decision on which CD strategy is the best option for the money.