Todd's Tax Service LLC

CD Rates are rising!

Local banks are beginning to advertise higher rates on Certificates of Deposit (CDs) and savings accounts. This has been a long time coming....savers and investors have been getting little to no interest since the great recession of 2008.


There are 2 reasons that banks are willing to pay more on insured deposits. First, they are seeing loan demand again. They can make loans and profit from the spread on what they earn vs what they pay. Second, the "Fed" (Federal Reserve Bank) is charging more so it is more expensive for banks to borrow from each other.


If you have money in savings, checking, or CDs that are coming due, now is a good time to become familiar with the new rate environment. The good news is that you can keep your business local! Simply shop around and look for the best rates. All deposits in banks and credit unions will generally be insured up to certain limits. And most banks will not charge any fees to open, maintain, or close a savings account or CD.


If you have money invested in stocks, REITS, and other investments, now is a great time to review your investments with your financial advisor. Investment values have softened but haven't crashed (yet). No one knows when the next big downturn will occur, or if one will occur at all. Rising rates now give conservative investors a potential alternative to risky investments. This alternative did not exist 5 years ago when banks were paying much less. 


These rates (2-3%) aren't going to make anyone rich. But they do represent a return that is sufficient to keep pace with inflation so you don't lose purchasing power. Many clients make the mistake of letting large amounts of cash sit in non-interest bearing checking and savings accounts. Their loss is the banker's gain.


Some banks are slower than others to raise rates. Bank deposits are "sticky" meaning clients are slow to move money from one bank to another. As I stated earlier, there usually aren't fees associated with opening and closing most types of bank accounts, so there is no reason not to do it.


Bring beneficiary info (Name, SSN, address) to the bank when opening CDs and new accounts so you can set that up and avoid trouble down the road.


CDs are appropriate for IRA money as well as regular savings.


Tred carefully when investing in stocks, REITS, bonds, and other investments in this rising rate environment.


Todd Fogelberg

July 3, 2018