Consumers seek alternatives to CD’s as rates continue to decline

A recent Market Rates Insight report shares that consumers in general may be considering CD alternatives at this point due to the continuous decline of CD rates. The report includes data showing that in October, CD rates fell below the 1% mark.

Financial expert Rebecca Sorenson says that the implication of this decline is that it may lead the majority of consumers to consider other financial investments. Though trends show that more and more retirees are opting for the Certificates of Deposits as investment, Sorenson believes, this development does not have a homogenous impact on all consumers. She says that though deposits are very important, not only to the financial strategies of many retirees but also to their assets in general, rates currently stand as disadvantageous to the larger number of consumers. She says that other types of investors may no longer find it viable to rely on the CDs as a good investment tool since the benefits it offers is no longer as extensive as the previous years.

In line with this, Market Rates Insight report included data showing that in 1980, the majority of financial institutions offering CDs have registered declining rates – most of which have been fluctuating insignificantly near the 18% mark. Until the 1990s, Sorenson says that these were the times when consumers still found CDs as a safe, secure, and high-yielding investment tool. She adds however that the current figure of CD rates, typically falling below 1%is far from encouraging. Sorenson believes that with this rate, CDs may no longer be able to return investments justifiably.

The Market Rates Insight report cites the interest rate of 0.99% on deposits that mature between 3 months to 5 years. This is also the average interest rate for deposits with such maturity period. By looking at these figures alone, it is clear that CDs no longer offer greater advantage compared to traditional savings accounts. The report came up with 0.80 percent as the national average for the combined rates of CDs, savings accounts, and money market accounts. Sorenson says that such percentage level assumes a rate lower than expected.

In a recent interview with St. Petersburg Times, Spokesman Stephen Csenge from the Financial Planning Association of Tampa Bay says that this combined rate is indeed a “huge hit”. With the hundreds of weekly calls made by consumers, the association offers a solution by providing alternatives to CDs. Though Csenge admits that such task is difficult, they are still doing their best to serve consumers who have experienced huge declines in CD rates so as to provide them with people with profitable investment solutions.