Have CD rates peaked? Interesting article

[disneysteve]

6-percent CDs: Lock Them Up
By LAURA BRUCE

The days of ever-rising certificate of deposit yields might be waning. But CDs offering 6 percent have surfaced, and this may be the time to lock in, what is by most standards, a very good return.

Usually, you'll need to look locally for institutions offering 6 percent. As of this writing, Bankrate's list of highest-yielding CDs doesn't have any topping the 6-percent level. That may be due to, among other things, Bankrate's requirement that CDs on the highest-yield list must be available nationwide. Many of the institutions we spoke with only offer their CDs locally.

Consumers are hunting down these high-yielding CDs and snapping them up.

USE Credit Union in San Diego took in $25 million in new deposits in July with two wildly popular CDs. One is a seven-month, 7-percent CD with a minimum/maximum deposit requirement of $2,500, and the other is an 18-month CD at 6 percent, which has now been reduced to 5.75 percent.

"It's more popular than we thought it would be. More people were grabbing the 6 percent for 18 months, but a good 20 percent of the people are coming in for the 7-percent CD," says Kevin Moyle, assistant vice president. "It tells me that the smart money is looking at the risk in the stock market, and they're saying if I can get a guaranteed 6 percent or 7 percent I'll take a portion of my net worth and invest it."

Investors must qualify for credit union membership, which is limited to people who live or work in five California counties where USE does business.

Many 6-percent CDs are for shorter terms, such as one year or 18 months, but if you'd like to count on getting 6 percent on your money for five years, you can.

Chicago's First Bank of Highland Park has a five-year CD at 6 percent, available in Chicago only, for a $5,000 minimum deposit. Executive Vice President Joseph Zaccari says savers who are holding out for 7 percent may be a bit too optimistic.

"I think people are thinking they can get a higher rate. We're probably reaching a point where we're getting a top -- maybe not 6 percent, maybe 6.5 percent, it's hard to say. But I think 7 percent is a reach, and people should think long and hard about 6 percent. It won't last forever."

New Jersey residents and people living in nearby eastern Pennsylvania had a brief opportunity to sock away a 6-percent CD for five years with a minimum deposit of $1,000 at Roma Bank in Robbinsville, N.J. But the offer was recently pulled when the Fed didn't raise rates for the first time in two years.

When it comes to fixed-income investments, 5 percent appears to be the level where many people take notice.

"At 5 percent you're competing with top-quality municipal bonds," says Martin Mesecke, certified financial planner and president of Self Worth Financial Planning in Plano, Texas.

"You have to look at the purpose of the CD; is it to preserve capital or to spin off an income stream? If I had a choice between a one-year CD and a five-year CD, both at 6 percent, I'd buy both. We have our clients keep a reserve of a year to 18 months in cash, and this is a perfect vehicle for that. And also consider it for an investment in the portfolio. (At these yields) it has long- and short-term merits. People have to look at what they're trying to accomplish."

In addition to banks and credit unions, many brokerages offer high-yielding CDs. Brokerages typically carry CDs that are being offered by banks across the country. It's an easy way for customers to buy CDs at top rates from multiple institutions without having to open individual accounts at each bank.

Peter Crawford, vice president of brokerage products at Charles Schwab, says the firm recently listed a 6-percent, five-year CD that sold out quickly. But other than that offering, which was the first five-year CD at that yield, customers are sticking with shorter maturities.

"Clients are scooping up the three-month CDs but haven't demonstrated the interest yet in the five-year. (For the most part) there's only about a 30-basis-point difference between them. But as we get above 5 percent, a lot of money is moving into CDs."

As the Federal Reserve ceases raising short-term rates, expect to see yields on short-term CDs shrink. Banks, which have been stymied by the flat yield curve, will likely try to push consumers toward longer-term CDs, so you may see an increase in five-year CDs at the 6-percent level or better. But, as has been mentioned, don't sit on the fence too long waiting for 7 percent. It may come, but you could be passing up a very worthwhile return in the interim.

[sweeps]

Anything could happen but IMO locking in for 5 years at this point is foolish. Sure rates are plateauing at the moment, but I believe they'll continue to rise.

[yellow heel]

what determines the interest rate to rise or fall?

[sweeps]

Short-term rates are determined primarily by the Federal Reserve. Long-term rates are determined primarily by bond traders.

[Diolla]

I think I need a lesson in economics but I always thought interest rates rose or fell based on the money supply. When money is in short supply because of inflationary pressures or slow growth in the economy then interest rates rise. Baiscally supply and demand?

[slimcustomer]

My crystal ball is broken, so I have no idea where rates are going over the next five years. I do know that over this summer since Memorial Day weekend, over 100+ financial institutions have offered rates of 6% apy and higher on certificates with varying terms and deposit levels. Although a number of these certificates were restricted by geography or to certain groups, a number of 6%+ certificates were available to anyone.

Below are a few of the current offers available to anyone:

Patelco Credit Union 6% 12-23 month Flexible Term Bump Up Certificates
Pentagon Federal Credit Union 6% apy 3, 4, & 5 Year Certificates
Western Federal Credit Union 6.56% apy 36 Month Variable Rate Certificate

[disneysteve]

Originally Posted by slimcustomer

Below are a few of the current offers available to anyone:

I thought the whole point of credit unions is that they limited their membership to people meeting certain criteria such as military members, employees of a certain company or people in a certain profession.

Do the credit unions you listed let just anybody join? If so, are there any costs, fees or obligations to joining? Thanks.

[Snoopy2645]

Well I know that they are as high as I have seen them at in about 5yrs maybe more but I only locked in yesterday for 10 months I have this idea in the back of my head by next year I will buy a bigger newer house & maybe need that money but if you are set in & wont need the money then you may want to lock in

[disneysteve]

Originally Posted by slimcustomer

Western Federal Credit Union 6.56% apy 36 Month Variable Rate Certificate

It looks like this one is only for IRA, Roth or Coverdell accounts.

[safari]

Originally Posted by disneysteve

I thought the whole point of credit unions is that they limited their membership to people meeting certain criteria such as military members, employees of a certain company or people in a certain profession.

Do the credit unions you listed let just anybody join? If so, are there any costs, fees or obligations to joining? Thanks.

Usually you have to join some organization to become eligible. For example, for Pentagon credit union you can join the National Military Family Association (one year membership costs $20). Here is the link https://www.penfed.org/membershipApp...elig10.2.1.asp