Cd Rate Comparison

When analyzing historical CD rates, it is interesting to see what hindsight conclusions we can make. Our data only goes back to 1993, but the data should reflect our current economic models better or at least the inflation hawks we’ve been “blessed” with. Our CD rate information is current as of December 31, 2006.

These types of investments will not provide any quick incentives but will provide highly secured income. Money market mutual funds (MMMF) are open-ended short-term debt instruments with a maturity period of usually less than a year.

When choosing the required source of investment, an investor will compare CD rates and rates of interest offered by money market mutual funds. Usually the Average Percentage Yields (APY) are higher on CDs compared to MMMFs.

You would have fared much better if you invested with a longer-term perspective. CD rates for 3-year CDs have been 5.071%, 4-year CDs have been 5.170%, and 5-year CDs have been 5.383%. That is up to a full percentage point difference. This actually makes a lot of sense.

In order for a certificate of deposit to work properly and provide the most benefits to the account holder there needs to be a minimum deposit that has to be met in order for the returns to be worth the wait, in other words opening a certificate of deposit account with $100 would be almost pointless even if you’re expecting a 5% return on that particular investment; if we calculate 5% out of $100 we will have five dollars and as everyone knows “$100 now” is better than $105 in one year.

Currently, Banks and Credit Unions are faced with an inverted yield curve. This means the short-term treasuries have a higher yield than the longer-term.

Historically, a drop in rates has followed an inverted yield curve. As a result, Banks and Credit Unions are anticipating this drop and don’t want to offer too high of a rate for the long-term CDs.

One can also compare CD rates among different types of CDs themselves. The philosophy is that having higher maturity periods pay higher rates of return. Since APY measures the actual interest earned per year by an investor, he can use it to compare CDs of different interest rates and compounding frequencies.

Derek owns a CD rates comparison site where visitors can find current CD rates.

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