Can US CD rates bring smiles for the US investors

Banks in the United States operate under the guidelines set by the US Federal Reserve. Working under the cap of PLR or Prime Lending Rate, the banks in America draw their earnings by accumulating high APY interest rates on loans than on CD rates. The comparison is drawn based on the same tenure and preliminary date considerations in respect to the loans as well as the CD rates.

As a matter of fact, the CD rates in American banks depend highly on the US economic conditions. Periodically, the US Federal Reserve sets a restriction on the PLR for all US banks so that money could be lent to commoners as well as business communities. The Prime Lending Rate or PLR fluctuates from time to time which too depends on the US economic health.

Needless to say, banks are always in the hunt to make money whether they are located in USA or any other corner of the globe. They have always been aiming to return massive profits to shareholders. Now, if you are one of them, you can always purchase their stock and utilize it to preserve your hard-earned savings. Now, here is a twist. In recognized banks like Citibank and Bank of America, the CD rates offered are quite low since they run with an extensive base of interest deposits like checking accounts and savings accounts.

Revenues earned by banks are extracted from two major sources. One is the fee income derived from ATMs, call centers and the checking accounts. The other one is the money coming from the differences between the savings and the CD rates paid on deposits as well as the rates at which people pay off their loans. Well, it’s certainly not a perfect alternative for banks to fetch huge profits. Rather, if there is a 3% combined deposit and a 6% average loan rate, the bank can make up to 300 Basis Point spread.

While comparing CD rates across the country, the best rates come at 5.40% for 1year. In this respect, if the bigger banks pay off all their deposits, they will land up with 60 Basis Points. Consequently, banks won’t be able to survive.

According to the estimates by a New York-based banker, the CD sales experienced a heavy downfall by 60-70% for the month of October. The leader of the third-party distribution at New York, Sean Gordon said that October was not at all a good year for the American economy. The spiraling of the swap rates crisis brought down the trade rates to a good extent. Well, CD rates are predicted to escalate with the growth in US economy and benefit the keen investors if not drastic fluctuations hinder the normal growth of the rates.