If interest rates rise will CD's immediately follow?

[UnrealizedPotential]

I was just wondering because CD rates have been pathetic for so long. It is a long, long way to the 4%-5% return that would make it attractive for me. However, I think such a return is badly needed and I admit we are probraly years away from such rates on a CD. I would love to see the beginnings of a march upward on rates. Would it take another catalyst for CD rates to go up here from the bottom?

 

[Sunset]

New CDs will rise pretty much in lockstep (my guess).
Assuming 2015 we get a 0.5% increase in short term rates, the short term cds will rise, but long term ones will rise less. (all my guess)

 

[2B]

CDs typically pay a little above their equivalent maturity US bond/note and are guaranteed by the US government. If CD rates go up, they will follow the increase in US bonds and continue to yield a little above them.

The resale value of existing CDs will, of course, drop but they will still be redeemed at par at maturity.

 

[audreyh1]

Short-term CDs should.

 

[Totoro]

Immediately I don't know, typically there is a delay in reaction (both upwards and downwards) where I live (EU zone), up to one year or so.

It also depends on competitive dynamics. For example a new bank launching offers temporarily high rates, dragging the rest upwards. Or inversely a competitor withdraws and passive (or active ) collusion keeps rates low for a bit longer.

 

[Mulligan]

CDs typically pay a little above their equivalent maturity US bond/note and are guaranteed by the US government. If CD rates go up, they will follow the increase in US bonds and continue to yield a little above them.

The resale value of existing CDs will, of course, drop but they will still be redeemed at par at maturity.

If you can stand to wait long enough to redeem at par! I bought a couple of 10 year brokerage CDs about 4-5 months ago. First time I have bought a brokerage one. I had no idea they were going to track the daily value of them in my total account. So I couldn't resist today and sold, receiving in effect 18 months worth of interest in my Roth account.


Sent from my iPad using Tapatalk

 

[OAG]

What makes you think interest rates generally will rise any time soon? Of course if they do CD rates will too (my guess). Have you seen/read the FMOC Chairs comments on rates from the News Conference yesterday? Not very optimistic on timing for any rate increases.

 

[2B]

If you can stand to wait long enough to redeem at par! I bought a couple of 10 year brokerage CDs about 4-5 months ago. First time I have bought a brokerage one. I had no idea they were going to track the daily value of them in my total account. So I couldn't resist today and sold, receiving in effect 18 months worth of interest in my Roth account.

I had some TIPS and sold them a few year back when I got to pocket several years of interest via untaxed capital gains. The kept going up in price after that.

I can't say I won't trade CDs but the primary function of my CD ladder is to be my fixed income portion of my portfolio. I harkens back to trying to be a market timer which never went well for me.

 

[Independent]

I went to the Federal Reserve online data base: Interest Rates - FRED - St. Louis Fed

Comparing 6 month CDs and 6 month Treasuries, I thought the moved "pretty closely" between 1964 and 2013. But, that's just history.

( Note that you can use FRED to put two data series on one graph. )

 

[Mulligan]

I had some TIPS and sold them a few year back when I got to pocket several years of interest via untaxed capital gains. The kept going up in price after that.

I can't say I won't trade CDs but the primary function of my CD ladder is to be my fixed income portion of my portfolio. I harkens back to trying to be a market timer which never went well for me.

I certainly can't justify the decision to sell based on any rational decision. I just assumed wrongly that buying the brokered CD would just show a purchased amount until I tried to sell it. I had no idea they were going to post an amount into my daily asset value based on daily swings. That really annoyed me for some inexplicable reason, so I decided I might as well buy something that will give it a reason to move up and down.


Sent from my iPad using Tapatalk

 

[Lakewood90712]

I don't see anything that would raise cd rates significantly. All of the central banking systems are willing to pump money in to keep rates low for so called economic stimulus purposes , it is SOP now.Everyone is doing it, no end in sight.

The financial returns for savers , including retirees is about at the bottom of the priority list.

 

[pb4uski]

...Would it take another catalyst for CD rates to go up here from the bottom?

In theory, as the economy gets stronger the stimulative effect of low interest rates is no longer needed and it is safe for the FED to increase rates.

Also, if the economy starts to overheat and inflation increases, then increased interest rates would be a way to turn down the heat some. That said, I see no indications of anything like this in the near future.

 

[Aerides]

We have a current/active Bank and CD rate thread, so I'll move your post over there and close this.

https://www.early-retirement.org/fo...-2022-please-post-updates-here-112376-11.html