Certificate of Deposit (CD) Rates: Why Are They So Low?

Certificate of deposit (CD) rates have been extremely low since the latest recession. In fact, just 3 years ago in 2008, rates were near the 5% range. Now, you are lucky to find a rate above 1.25%. So will the rates ever increase? Are we doomed to low returns on our deposit accounts?

Why CD Rates Are So Low Now

When a bank or other financial institution offers a deposit account, the rates will typically be set to reflect the current rates from the treasury. What this typically means is this: When treasury rates are low--then cd rates are going to be low. When treasury rates are high--then CD rates are typically going to be higher as well.

When the economy collapsed in the recent recession, the treasury rates also were lowered signficantly. Thus, nearly all deposit accounts (savings, CDs, checking accounts, etc.), also experienced a sharp reduction in rates.

Of course, this is great news if you wanted to refinance, or if you wanted to get approved for a low-interest loan. In fact, I was able to lock in a very low rate for my first mortgage during this period. But if you were hoping to get a solid return on your deposit accounts--it just didn't happen.

When Will Certificate of Deposit Rates Go Up?

Since CD rates are tied so closely to the treasury rates, you can expect that they should increase when the economy rebounds. Unfortunately, in 2011, some fear we may hit a double recession. Should this happen, then deposit rates may indeed stay low for the next few months or even years.

If, however, the economy begins to recover, then the interest offerings should increase along with it. This would be great news for retirees and others who rely on interest income to pay their living expenses.

How to Know When Interest Rates Increase

If you are wanting to invest in a CD, then the best way to know about rates is to find a great site that monitors rates. There is always natural fluctuations in interest, but generally speaking, it is often easy to spot a trend of increasing or decreasing interest offerings. So it can pay to shop around online (literally) before investing.

Also, don't forget to check the local banks or credit unions as well. Sometimes you can nab even higher rates as compared to larger banks. So make sure to call or drop by your local financial institutions while you are shopping around.

Do you want to learn more about investing in CDs? If so, then I'd like to invite you to my website. You can sort through a collection of articles related to investing, and also learn more tips when opening certificate of deposit accounts.

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