OT: Alright, all you finance gurus...how long before CD interest rates go back up?

[EPOJoe]

Ah, I fondly recall the days when I used to get five percent on my CD's. Will these interest rates ever again rise from their current abysmal state?

[oldpotatoe]

Ah, I fondly recall the days when I used to get five percent on my CD's. Will these interest rates ever again rise from their current abysmal state?

Ahhhh, geeezz

[saab2000]

Ah, I fondly recall the days when I used to get five percent on my CD's. Will these interest rates ever again rise from their current abysmal state?

They might go that high again when inflation is 8% annually and interest rates are 10%.

Are you sure you want 5% CD rates?

You will never outpace inflation on a savings account or even on a CD.

[biker72]

Ah, I fondly recall the days when I used to get five percent on my CD's. Will these interest rates ever again rise from their current abysmal state?

I think so but it's going to take a few years. Fed chairwoman Janet Yellen has indicated that until the economy gets better the interest rate will stay the same.

[1centaur]

Banks will pay you 5% to lock up your cash when they can get 7% by using your cash and they can't get cash cheaper than 5%. It will be a while.

I bet somewhere on the Web you can find a history of CD rates and a history of Treasury rates to see what the typical spread is. Rarely have I ever seen a CD rate that is attractive in the array of alternatives. They are a way to underearn as a trade-off for feeling safe because it's issued by a bank.

When CD rates are 5%, we are going to be in a very different economy.

[biker72]

I can remember when Jimmy Carter was president and inflation was very high.
I was getting 10.5% on a couple of tax free municipal bond funds I owned.

[witcombusa]

I think so but it's going to take a few years. Fed chairwoman Janet Yellen has indicated that until the economy gets better the interest rate will stay the same.

Yeah, you go with that...

fyi, the economy is getting worse, not better.

[crownjewelwl]

Never...

[biker72]

Yeah, you go with that...

fyi, the economy is getting worse, not better.

Hopefully we wont go through another recession before things get better.

[oldpotatoe]

I can remember when Jimmy Carter was president and inflation was very high.
I was getting 10.5% on a couple of tax free municipal bond funds I owned.

And I was trying to sell a house and the interest rate was 20%+

[oldpotatoe]

Yeah, you go with that...

fyi, the economy is getting worse, not better.

Here we go...I predict closure in 5 posts.

[biker72]

And I was trying to sell a house and the interest rate was 20%+

I was working construction on weekends back then. 1/4" plywood went from around $5.00 a sheet to almost $20 during the Carter administration.

[joosttx]

Never.... how are the financial institutions going get the baby boomers money if it only takes opening a cD to get a 5% return.

[joosttx]

They might go that high again when inflation is 8% annually and interest rates are 10%.

Are you sure you want 5% CD rates?

You will never outpace inflation on a savings account or even on a CD.

As I recall CDs return was around 5-6% when Clinton was president. I will take those times than now, yo.

[saab2000]

As I recall CDs return was around 5-6% when Clinton was president. I will take those times than now, yo.

You may well be right. I've only recently gotten into this and my retirement 'savings' are actually not savings at all. They're investments. With some risk.

We're not going to have a risk free savings that exceeds inflation rates for a long time again I don't think.

[joosttx]

You may well be right. I've only recently gotten into this and my retirement 'savings' are actually not savings at all. They're investments. With some risk.

We're not going to have a risk free savings that exceeds inflation rates for a long time again I don't think.

I think you hit nail on the head. It's not savings but investments.

[Ralph]

I personally think predicting future interest rates is more difficult than predicting the future direction of stocks and the stock market. And been trying to do it for 40 plus years, even though retired now. Never bought a bank non negoitiable CD. With taxes and inflation, figure I would just be locking in a loss. Just figure marjority won't get it right, and you won't be off too much.

[witcombusa]

Hopefully we wont go through another recession before things get better.

We're going though one right now. And when (not if) the petro dollar folds,
watch out :eek:

[nm87710]

[QUOTE=saab2000;1555064]

Good Luck

[oldpotatoe]

When ya need some levity?

[texbike]

^ Funny! :)

I believe that the Japanese found themselves in the same predicament in the 90s.

Texbike

[bthornt]

A good tool to predict the future behavior of interest rates is the term structure of interest rates (or yield curve). This link is the yield curve for US Treasury securities, which are more risky than a CD, and therefore should have higher expected returns. Note that as the maturity of the instrument increases, so does the interest paid. This suggests that the consensus is that interest rates will be higher in the future (if you believe in expectations theory). So, rates will probably rise, but how high and how quickly? Maybe a finance Ph.D. can weigh in on this issue.

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

[1centaur]

Note that the accepted wisdom among professionals is that the forward curve is a terrible predictor of interest rates. When I was getting my MBA quite a few years ago my professor said it was bad but better than professional prognosticators. I have never heard a similar endorsement from anyone.

[rounder]

I got an MBA a long time ago. Our investment prof was a Harvard Phd who told us that (at the time) no one out performs the DOW over the long term. I am pretty sure that I do not know more than him, so I invest conservatively.

[Mr. Pink]

They might go that high again when inflation is 8% annually and interest rates are 10%.

Are you sure you want 5% CD rates?

You will never outpace inflation on a savings account or even on a CD.

In about 1980, my father went out to two banks and bought two five year 15% CDs (federally insured was 100,000 max from each bank), That's double your money in five years in total safety. At the time, crazy inflation was almost over, although most didn't know it. So, inflation easily beat with those things. Amazing investment. The stock market was still in the doldrums.
The smartest person I knew around money at the time told me he thought we would never see single digit interest rates in our lifetimes. This stuff is very hard to predict. But I think nothing beats a good solid dividend fund right now. Bonds are toast for awhile.

[joosttx]

In about 1980, my father went out to two banks and bought two five year 15% CDs (federally insured was 100,000 max from each bank), That's double your money in five years in total safety. At the time, crazy inflation was almost over, although most didn't know it. So, inflation easily beat with those things. Amazing investment. The stock market was still in the doldrums.
The smartest person I knew around money at the time told me he thought we would never see single digit interest rates in our lifetimes. This stuff is very hard to predict. But I think nothing beats a good solid dividend fund right now. Bonds are toast for awhile.

Truth

[Ahneida Ride]

You will never outpace inflation on a savings account or even on a CD.

This is true.
Inflation is exactly the opposite. The federal reserve note is
becoming worthless. Our nation's private central bank counterfeits
85 Billion per month.

Banks, practicing "fractional reserve" can then counterfeit 9 times that amount.

Just Google the fed publication .... Money Market Mechanics. It's all there.
We pay interest on entries typed into a computer spreadsheet.

[oldpotatoe]

:hello:This is true.
Inflation is exactly the opposite. The federal reserve note is
becoming worthless. Our nation's private central bank counterfeits
85 Billion per month.

Banks, practicing "fractional reserve" can then counterfeit 9 times that amount.

Just Google the fed publication .... Money Market Mechanics. It's all there.
We pay interest on entries typed into a computer spreadsheet.

:hello:

yay..levity!!!

[Ahneida Ride]

Purchased van in 1981 for 8K.

Purchase similar van in 1987 for 17K.

Yes, those 15-20% rates did help, but they did not increase my wealth
In those 5 years the truck price doubled.

[Ahneida Ride]

http://upload.wikimedia.org/wikipedia/commons/thumb/0/01/Fractional-reserve_banking_with_varying_reserve_requirements. gif/360px-Fractional-reserve_banking_with_varying_reserve_requirements. gif

Here is the "fractional reserve" chart.

You make find a similar chat in the fed publication Modern Money Mechanics
Page 11. Here is the link
http://lisgi1.engr.ccny.cuny.edu/~makse/Modern_Money_Mechanics.pdf

100 is deposited in the vault and 900 is created outa thin air.
Imagine if I had 100 in my checking and could write checks for 1000.

[oldpotatoe]

Purchased van in 1981 for 8K.

Purchase similar van in 1987 for 17K.

Yes, those 15-20% rates did help, but they did not increase my wealth
In those 5 years the truck price doubled.

Sounds like you got the wrong van...

Bought New Beetle in 2000-$16,000..Bought a far superior Jetta Sport Wagen TDI in 2013 for $24,000...DOH!!!2014 Beetle same car is $21,000..inflation says it ought to be...$21,000

Bought a new VW Sycro Vanagon in 1987 for $12,000...not keeping up with inflation, those pesky Germans...

I have all my $ in a variety of investments..somebody else takes care of them..My USN pension has increased by about 100% in the 20 years since I retired...my SSN comes in every month..I'll not have to live outta my car nor will my kids..you make your own bed, then sleep in it..

Barter will work when anarchy comes..I'll just fix bikes..when the energy and water wars start.

I'm out.

[cfox]

This is true.
Inflation is exactly the opposite. The federal reserve note is
becoming worthless. Our nation's private central bank counterfeits
85 Billion per month.

Banks, practicing "fractional reserve" can then counterfeit 9 times that amount.

Just Google the fed publication .... Money Market Mechanics. It's all there.
We pay interest on entries typed into a computer spreadsheet.

You will be relieved to know that the Fed has been tapering QE, and they're only "counterfeiting" 55 billion/month now. They'll be done by the fall.

[Ahneida Ride]

Unfortunately this was a work truck. A full size van was the only option.

[FlashUNC]

Others have laid out the case for low deposit rates for the near-term.

Reality is banks' appetites for deposits are a function of loan demand in the marketplace. If they can't get, say, 7% on a loan to one customer, they're not going to offer you 5% for the privilege of using your money for a few years.

[cfox]

Others have laid out the case for low deposit rates for the near-term.

Reality is banks' appetites for deposits are a function of loan demand in the marketplace. If they can't get, say, 7% on a loan to one customer, they're not going to offer you 5% for the privilege of using your money for a few years.

Correct. Right now loan demand is incredibly low, and banks are awash in excess reserves. Those reserves are parked at the fed, earning interest. Any amount of loan demand would have to work it's way through the mountain of excess reserves before there is any sort of demand for deposits. Despite Ms. Yellen's boo-boo in her rookie press conference, she had made it clear since that the Fed is in no hurry to raise rates. And anyone who has studied the Fed can tell you they usually stay on a path (whether easy or tight) far longer than the market prices in. It's never a good idea to try to time the first Fed move; I've seen careers ruined that way. Despite what our pal the handlebar tape guru may think, the Fed is rightfully much more fearful of deflation than inflation. Rates are staying low for a while.

[Mr. Pink]

the Fed is rightfully much more fearful of deflation than inflation. Rates are staying low for a while.

Yup, I can't see rates going up at all for a while. Inflation just can't happen with falling wages, which will continue as long as the developing nations kill us with wage levels and billions of more workers come on line worldwide earning little (but much more than the abject poverty they are leaving). Combine that with the tidal wave of technology destroying middle class jobs in the developed world, and deflation is a real possibility. Many are still deleveraging from the greatest credit bubble in history, and that will take a long time to work itself out, especially with no inflation to cheapen those debts.

The developed world is following Japan. They have been battling deflation for over twenty years. Unless we can invent a few new industries that employ many at a decent wage level, I fail to see how we won't deflate.

This is a good read about our present issues. http://www.amazon.com/The-Age-Oversupply-Overcoming-Challenge/dp/1591845963/ref=sr_1_1?ie=UTF8&qid=1401200109&sr=8-1&keywords=the+age+of+oversupply there is a glut of overcapacity, worldwide, and it will continue for years, maybe decades. At least we get cheap cars and flat screens out of the deal.

[FlashUNC]

When I was covering the industry back in the boom years pre-2008, banks' ability to court deposits was literally their #1 concern. Couldn't find the money fast enough to keep up with loan demand. Hence all the ridiculous rates.

But even then they were still paying out at a rate below what they were charging for loans. The frenzied competition for those loans amongst banks led to quite a bit of margin compression -- and in turn crimped profitability -- that then led to them chasing volume in lending to make up for the diminished margins. Led to a lot of bankers making really stupid credit and risk decisions long-term that caused a ton of banks to go bust.

Thing to always remember is deposits are counted on a banks' balance sheet as a liability, not an asset. Your money is generally a burden to them unless they can turn around and make money from it.

[bobswire]

I left Morningstar years ago and came here for peace and quiet.
You want to talk finance, fine, take it somewhere where they know what they are talking about. http://www.morningstar.com/

[verticaldoug]

For some strange reason, I watched an old Richard Feynman interview on BBC Horizon last night. This reminds me of Feynman's quote- the difference between knowing something and understanding something.

In finance, experts might know something, but usually don't undertand the consequences. . .

[jlyon]

The biggest problem is that if interest rates triple up to that 5% level then the interest on our federal debt would follow about the same curve because very little of it is long term debt (more than 10 years).


I think one of the most memorable things I read recently is that the true taxes in any country is spending. That tax is what we actually pay plus the remainder that must be borrowed and paid back later.

As long as spending continues the way it is Taxes are in reality being raised on us without the debates of changing the actual tax code.