Conservative Bank Investments in a Difficult Economy

By Dan Nelson, on February 25, 2009

The recent trend in bank CD (certificate of deposit) rates has, needless to say, been a negative one. If you were following deposit rates even 1 year ago you would have witnessed a unique time in which banks where offering some of the most lucrative rates in recent history. During the winter – spring of 2008 (right before the beginning of the bank collapse) banks were hurting for cash and consequently began battling amongst each other for deposits, causing a record rise in their rates. Just 8 months ago it was fairly common to lock in 6 month and 12 month CD rates with yields of 4% and 5.5% plus (respectively). Now, you would be lucky to lock in rates yielding half that amount for those durations of time.

So what caused the beginning of the end of these lucrative rates?

Some BankVibe.com readers suggest that the recent rise in FDIC limits (from $100k to $250K as of October 2008) had a large impact on rates being offered by both national and local banks and credit unions. They argue that due to the rise in federal insurance banks didn’t need apply as much emphasis on rates because consumer’s would essentially trade-in high yields for financial security. Others suggest that the federal bail out money provided the much needed cash-injection that would have had to come via consumer deposits had the government not stepped in to help. Regardless of the cause, the fact still remains that in a time-frame of less than 12 months CD rates went from an all-time high to an all-time low.

Where can investors find the best savings account rates?

Currently the highest savings account rates can typically be found in local credit unions. Over the last month BankVibe.com readers have submitted over a dozen promotional rates being offered by these credit unions. The rates can very anywhere from 4-8% annually depending on the terms and conditions. Most of these accounts require you to fund 1-2 other accounts (either checking or savings) and require a minimum balance.

Perhaps the most controversially place in which people have been investing lately is in foreign bank CD’s. The biggest problem with this is that these banks do not offer any sort of federal insurance or FDIC equivalence, which makes them far more risky. The rates being offered by some of these banks however can’t be ignored entirely when they are yielding 12 – 19% annually.

If you are looking for shorter term conservative investment to store your cash until the economy gets back on it’s feet you may want to search for the best 6 month CD rates or consider keeping your money in an online savings account. Currently you can find online savings accounts yielding anywhere from 2 – 2.5% APY.

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Dan Nelson is a bank rate tracker with a strong interest in consumer finance. He created BankVibe in the Fall of 2008.

All posts by Dan Nelson

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