Wednesday, 7 May 2014

A Little History over CD Rates

My brother will harp on this discussion topic a fair amount.  CD rates at banks....are lousy.

In 2012, the six-month rate was around .63-percent.

In 2007, the year prior to the was around 3.50-percent.

In 2000, before 9-11, it was 6.75-percent.

In 1997, in the midst of the Clinton-era, it was 6.70-percent.

In 1990, we were actually getting 7.50-percent for a six-month CD.

Toward the last six months of 1989, the six-month rate actually floated between 10.40-percent and 10.13 percent.

Toward the middle of the 1980s....the average CD rate for six-months floated around seven and eight percent.

For ALL of 1984.....the CD rate was ten to eleven percent.

In the first four months of 1980....we had this amazing monthly rate that ran: 13.48-Jan, 14.58-Feb, 17.74 for Mar, and 15.80 for Apr. was an amazing period.

Most of the 1970s...the average CD rate ran around five to six percent a year.  For five months in 1974.....we ran ten to twelve percent on the average six-month CD package.

Throughout most of the 1960s?  It stood above five percent for every single month, and in a fair number of months....above six percent.  Around mid-1969, we briefly tangled with eight percent for a couple of months.

The truth is....if you bring up the topic....most everyone under the age thirty don't remember much about CD rates, and they generally accept a rate of one percent as normal or average.  For those over sixty.....they remember the glory days and how eight and nine percent....locked into an account for a year or five years....really mean something.

Why the low rates for such a long time?  There's three basic reasons that the experts always bring up.

1.  The US is now perceived as the prime place to park money internationally....because we are ultra-safe....compared to various Asian countries, Middle-Eastern areas, and the European Zone.  So, the rich arrive...park their money....and there's no need for additional capital in US banks.  To be honest.....they are overflowing, with other folks' money.

2.  Bank reserves are at a all-time high....something is unique and unusual.  Why pay more on CD rates....when you have the money sitting there?

3.  The Fed's target for short-term rates is awful low.....which affects the perceived outlook for long-term rates....which is where CD rates would be affected.  If the Fed said short-term perceptions were growing better....they'd raise their rates (something they quietly don't feel is good right now).  For six years.....their perception on short-term rates has been AWFUL low and you'd have to wonder if there's more to the whole Fed story.

I went looking for rates in the 1930s....and the best I could find was savings rates.  The typical savings account ran between .6-percent and 1.0-percent.....for a fair amount of the depression era. Toward 1936, it actually dropped to .1-percent, and for 1938/ was 0-percent.  Yeah....ZERO percent.

The odds of it going back to three to five percent?  Most economic experts say it's a cycle, and that it has to retreat back to a norm....sooner or later.  Course, they don't want to guess when this cycle will end.

So when Uncle Karl drinks a bit, and reminisces over 1980 and how he got locked into seventeen percent interest for a couple of years with his savings....he's not joking.  If he did a five-year CD....he turned better than seventy-percent growth over that period with his money.  Today?  Five years might get you six-percent growth over the entire period.  This is why Uncle Karl drinks so much probably.