Searching For Yield

by MB on February 1, 2008

Unless you reside under a rock, you have heard that the Federal Reserve cut the Fed Funds target rate from 4.25% to 3.00% in the last two weeks of January.  From the economic numbers that I have seen recently, it appears that the cuts were necessary in order to stimulate a rapidly flagging US economy.

But, when the Fed Funds Rate declines, so to do rates that banks pay savers.

Take a look at this chart of 1 year CD rates from

One Year CD rates 2008-2-1 

As you can see, rates have dropped like a stone, mirroring the Fed Funds rate.  The average yield for a one year cd is now 3.47%.   By doing a little digging, you can still find rates higher than this average. allows you to search for the highest yields by deposit product type.  A quick search today shows that MetLife Bank is offering a 4.02% rate with a 4.10% APY, but to get that rate you have to have a $25,000 minimum deposit.  GMAC Bank has the second highest rate at 3.83%, with an APY of 3.90%, which only requires a $500 minimum deposit.

What about money markets and savings? 

One Year MMA rates 2008-2-1

As you can see, a similar trend.  However, after searching BankRate again, I found that there are a number of institutions still offering relatively high rates.  For instance, AmTrust Direct is offering a savings account with a 4.51% rate and a 4.60% APY.  E*Trade Bank is offering a savings account with a 4.31% rate  and a 4.40% yield.  The highest money market yield is being offered by Flagstar Bank, at 4.32% with a 4.40% yield.

Remember that banks can change rates on savings and money market accounts at any time, while certificates of deposits have a contractual rate for the term of the cd.

Takeaway:  Do your homework!  You should always shop rates when you are looking to move, or add to, you short term savings.

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