Rate cuts hurt savers, but not as much as we think?

After the Fed’s most recent rate cut, I’ve been checking rates at ING Direct, waiting to see if the interest rates are going to fall on my savings accounts (I expect they will) and where CD rates will end up.  I’ve got a number of CDs right now, many more than I normally would have, simply because I’m working to get the best rate on my savings.

But I didn’t realize that CD rates are actually higher than they would normally be, given the current Fed rates.

 A number of factors are combining to keep CD rates higher than they’d normally be at a time of such low Fed rates.

“In typical times CD yields are highly correlated with the Fed rate. But these are not typical times,” said Greg McBride of Bankrate.com. Because banks are still scrambling to shore up balance sheets, they are doing all they can to attract bank deposits, and competition has helped prop up rates.

Banks want your money, and they’re doing everything they can to get it.  Locking it up in a CD means that there’s a pretty solid chance that the bank won’t have to give you your money for a set period of time.  Sure, you can always redeem early, but that’s not the norm.

A key point in this article is to not simply let your bank roll over your maturing CDs for you.  Naturally, the bank isn’t going to get you the best rate out there, because they’re looking out for themselves.  Of course, if you’re reading this blog, you probably already pay close attention to things like CD rates and maturation dates, but it never hurts to spread the word.

I do miss the days of the 5%+ interest rates on my savings accounts, and it will be nice to get back to that point someday, but I have to remember that it’s nice to earn any interest at all.

Anyone dressing up as the economy tonight?  Seems like a scary costume to me.  Have a great and safe holiday.

Megan Smith

Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:

In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance.  It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information.  It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck.  While that was working for me, clearly I needed a better plan.

While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.

Except that’s not what an emergency fund is for.

So I did a lot of research, read a lot of blogs, and decided that I needed a plan.  I needed to budget.  I needed to know what I was spending my money on.  I needed to prepare for the future.

I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way.  I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.