CD Investment Update

On Tuesday Federal Reserve increased the short term interest rate by 25 basis point to 4.0%. With rising inflation and oil price close to $3 a gallon, we can expect the Fed to continue this hike in its next two meetings to be held on December 13 and January 31 respectively.

Over the last few months we observed that the short-term yields on money market funds and CDs (Certificate of Deposits) also continued to benefit from these hikes in Federal Reserve's rate and now even long term rate is also trying to catch up as we are seeing in long-term mortgage rates that underwent continuous hike in last 7 weeks (see last Friday's posting).

With more possible rate hikes in line, it is a wise policy not to lock in your cash in long-term CDs. Short-term CDs, especially with 6-month maturities seem to be the best opportunity to take advantage of rising yields. If you donot even want to lock in your money, you may still enjoy a good 4.0% APY by putting it in NY-based bank Emigrant-Direct by simply opening a savings account. No minimum deposit is necessary. The Ing-direct bank also offers similar account but with 3.4% APY.

If you will still consider a 1-year CD, the 'Raise Your Rate' CD offered by IndyMac Bank could be a good choice. You need to put minimum $5000 and the yield is 4.5% APY. Advantage is: They allow One-time rate increase feature which may be exercised by you at any time during the term whenever you feel it is prudent to do so. The entire balance will begin earning the higher rate (available at that time) from the day following your request. The original maturity date will remain unchanged.