CD Rates and Changes in the Market

Deflation occurring in a country’s economy just like the recent downfalls is a big factor that affects CD rates from bank depositors.  Looking at the recent consumer price index or CPI have shed a light on the problem with promises of changes in the future.  With these changes, and in such a situation, depositors should be anticipating whether inflation will overtake the effects of deflation to CD rates.

 What deflation brings is the falling of overall prices in the market and is known to be the opposite of the rising prices called inflation.  Measuring inflation is by means of CPI and any changes with it in a certain period of time will show whether a country’s economy is facing inflation or deflation.  Although deflation is not a common event, 2009 marked the year of the most known deflation since the 50’s.

This affects rates in certificates of deposits where the falling of prices would mean more to depositors since they are earning purchasing power in the market.  This can make bank rates seem higher than the usual.  For example if you have invested with a 1% interest rate and there is a deflation of 1%, you will be earning about 2% after the inflation. 

Since 2009, there has been a record of deflation that reached 1%.  Since then, depositors with CDs have received a bonus from their investments.  Although it would seem low, the CDs are actually working better than it looks to the depositors.  With the interest rates remaining low, the question now is “would it be okey for depositors to keep on relying from the boost of deflation?”

In times when the market isn’t performing as well as expected, CD holders tend to be concerned.  However, this can be alleviated by the decline of CPI like when it dropped to about 1.4% which led to an increase in yield from the CD holders point of view.  Those who had an average of 1.6% interest have gained a total of about 3% in return after the trend in inflation.  The rate of inflation can’t be much of a problem to the highest CD rates, but could pose a great problem to those who are tied into a rate of about 1%-2%. 

Being in exposed in such changing environment, those who are into CDs with low interest rates are better off sticking to their savings account.  This is to avoid being tied into what you thought to be the best CD rates despite the fact that it could turn out to be the other way around.  You can also opt for long-term CDs that can earn you big amount over the inflation that’s happening but, only if the inflation gets back to moderate level and does not go out of control.

No matter what option you choose during such trends in the economy, just keep in mind that there is always a way to fully secure your investments.  Learn the twists and tricks around CD rates to get the best out of every situation.