Attention Bankers: It's Time To Raise Your Sorry CD Savings Rates

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  • The Federal Reserve's key short-term interest rate has increased 25 basis points.
  • Shorter-term Treasury yields have increased as much as 87 basis points since May.
  • But interest rates on bank CDs have barely budged. It's time for savers to benefit from higher CD rates.

Back on May 9, I wrote an article noting the investment wasteland for investors in the safest fixed-income securities. But a lot has changed in seven months:

  • The Federal Reserve raised its key short-term rate, the Federal Funds Rate, to 0.75%, an increase of 25 basis points.
  • A 1-year nominal Treasury was yielding 0.51% in May, and now that same investment yields 0.91%, an increase of 40 basis points.
  • A 2-year nominal Treasury was yielding 0.72%, and now it is 1.28%, an increase of 57 basis points.
  • A 5-year Treasury Inflation-Protected Security had a real yield (after inflation) of -0.30%, and now it is 0.32%, an increase of 62 basis points.
  • A 5-year nominal Treasury was yielding 1.20%, and now it is 2.07%, an increase of 87 basis points.

But there's one safe fixed-income investment where yields have barely budged since May 2016, despite the sharp rise in yields elsewhere. That is federally-insured bank certificates of deposit. Here is a comparison of current rates:

Rate comparison

Back in May, the best-in-nation bank CDs were paying 0.85% for six months, 1.26% for 1 year, 1.50% for 2 years and 2.10% for 5 years. Today, those rates have barely budged. And Bank of America and Wells Fargo - among the biggest U.S. banks for deposits - are offering comical CD rates and begging you to take your business elsewhere.

However, on December 15, one day after the Federal Reserve's announcement of a 0.25% rise in short-term rates, both Bank of America and Wells Fargo raised their prime lending rates by 25 basis points, to 3.75%.

And then, look at mortgage rates, which have risen sharply since November 1. Here's what the Wall Street Journal reported this morning:

Rates on plain-vanilla, 30-year fixed-rate mortgages have surged since Election Day by 0.76 percentage point, bringing them to

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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