A very common deposit account product that is used by the public is the certificate of deposit. A certificate of deposit also brings with it FDIC insurance of up to $250,000.00 at this point. Cd’s are generally seen as an attractive option for those who wish to put their money away and earn a yield higher than a savings account. It is important to remember that you should only deposit as much in a cd as you believe you won’t need for that time period, because there are penalties for early withdrawals.

Currently cd rates are extremely low because the Federal Reserve has the Fed Funds rate at virtually zero. The average one year cd is yielding a little less than 1.75% right now. This is definitely not an attractive deposit option with that kind of yield, but considering the health of the overall economy in the past year it isn’t surprising at all that rates are so low. When the Federal Reserve has set interest rates this low there is no way banks can afford to pay the impressive 4 or 5% one year cd rates we were used to seeing before. Even a five year cd, which locks up your money for a very long time only yields on average 2.93% according to Bankrate.com.

A question that many people have during this kind of economic environment is how long should I lock up my cd rate? The two options at this point appear to be either lock in a very long term cd after your compare cd rates at local banks and online. Even if you find the best cd rate out there for a long-term cd it won’t be very impressive at all. The other option is to use money market savings account specials or short-term cd rate specials and hope for better rates in the future.

Should you lock in cd rates now or wait for better rates in the future? The truth is it depends on your outlook on the economy. If you think the economy should improve drastically in the next several months you’ll want to stick to short-term options and wait for better rates. The definite thing about today’s rate environment is that things aren’t pretty, but they also can’t get much worse. The fact that rates can’t get much worse makes me wonder if it really is a wise move to lock up money for long periods of time.

You could see it coming from miles away, there was no way the banks could continue to offer the 4% special CD rates or the introductory money market account rates that yielded 3.5% or more. When the Federal Reserve moved to lower interest rates to zero it did so to try to stimulate the economy by making loans much more affordable, but unfortunately CD and money market holders are starting to suffer quite badly from the paltry returns on their capital.

Let me be clear, there are still some nice benefits to having your funds in assets such as a certificate of deposit or a money market account. There is virtually no risk in these accounts, so long as you have invested them in an FDIC insured bank. The stock market over the past few quarters has certainly showed us that even though low guaranteed rates can be discouraging, they certainly have a place in your portfolio.

What are the best CD rates available right now? According to a quick search at Bankrate.com the best one year CD’s have an APY of 2.8%. The average one year CD rate is about 2%. The highest six month CD rates come in at 2.25%, with the six month average sitting at about 1.7%.

The truth is with the economy staring at constant job losses and negative GDP, there is absolutely no way to predict how long it will take for these investments to start yielding a higher rate of return again. As interest rates begin to tick higher when the economy begins to get settled down, then banks will be able to start offering better rates of return on these types of investment options. For the foreseeable future the rate of return on these assets will be watered down, but it is still a guarantee and it is still better than just stashing your cash away and getting nothing in return!