Compare the top 6 CD rates available nationwide below.
6 Month CD Rates Will NOT Rise Until Unemployment Drops to 6.5%.
Wondering when will CD rates go up? Well, there’s your answer.
In the most recent FED (Federal Reserve) meeting regarding interest rates, FED chairman, Ben Bernanke, has stated that he will consider raising rates when unemployment reaches 6.5%. So given our current unemployment figure (see interactive char below), I believe we still have a while to wait before we can begin to expect anything from short term bank deposits again.
So why Invest in a 6 month Deposit?
While interest rates are at all time lows, a 6 month CD is still the most popular short term deposit product available.
Having your cash only tied up for a 6 month period allows you to have relatively quick access to it.
In a down-turned interest rate climate such as the one we are currently experiencing consumers generally opt for shorter term deposits usually with 6 month maturities or lower so that they have quick access to the funds when interest rates rise.
In a nut shell, you never want to go long on a CD when interest rates are low. Despite the fact that you could garner a higher interest rate on the longer deposit, you still have the potential of an opportunity loss if rates rise while your money is already locked into the long term deposit.
For example, let’s say two people invested in bank CD’s today. One took a 6 month CD, the other took a 5 year CD. While the individual with the 5 year CD may have received a 2.0% APY and the individual with a 6 month CD just a 1.0% APY, the one who took the 5 year CD doesn’t have access to his/her money for 5 years – and will garner just 2.0% annually even if rates rise again.
So, continuing with this example let’s say during the 3rd year interest rates rise to normal levels so that a 6 month CD is then providing a 3% APY. The individual who invested in the 6 month CD can then go long or continue purchasing 6 month CDs with 3% annual returns, while the individual who tied up his/her money in a 5 year CD is stuck garnering just 2% annually until the product has matured.
Certificates of deposit are not for everyone. If you’re worried about liquidity, you may opt for a traditional savings account or even consider a CD laddering strategy which provides for far easier access to your funds.
To put our current deposit rate environment into further perspective, take a peak at our chart tracking the yearly averages of 6 month CD rates since 1990.