Personal Finance Blog By MoneyRates - September 2007

Investors who use mutual fund money markets (money funds) as part of their investing strategy will note a larger yield spread between Treasury-only money funds and money funds with a wider diversity of holdings. Funds like DWS Money Market Series Prime Reserve - Class S (5.27%, minimum $1,000), Fidelity Money Market Fund (5.27%, minimum $25,000), Harbor Money Market Fund ( 5.24%, minimum $1,000), TIAA-CREF Money Market Fund (5.23%, minimum $2,500), and Fidelity Cash Reserves (5.23%, minimum $2,500) are all offering compounded yields significantly higher than the Treasury-only funds which are yielding between 4.50% and 4.75% on average. This summer has been one of the biggest tests of the money fund industry and with a few exceptions the funds have held up very well. The funds listed above have offered yields higher than U.S. Treasury-only funds while maintaining their net asset values ($1) through a turbulent market in mortgage-securities. Investors should always review their portfolio holdings to better understand their exposure to some of the more volatile mortgage-securities, but money funds continue to perform very well.

Former Fed chairman, Alan Greenspan, currently on a speaking tour to promote his new book said that over the long run, the biggest problem facing the U.S. economy is "the re-emergence of inflation," and rising interest rates. The emergence of Greenspan two days before the meeting of the FOMC gives more credence to the growing number of economists who are questioning the wisdom of cutting interest rates to give the American consumer some band-aid relief. Greenspan's warnings regarding inflation come at a time when gold is over $700 an ounce and oil over $80 a barrel -two indicators of price inflation. Furthermore, 2nd quarter GDP measured a neutral 2.5% and inflation has been measured on the higher-end of the Fed's target zone which would give support to the camp who believe the Fed should remain inflation-vigilant and not lower rates.

The future market is not a perfect forecasting model for the direction of fed funds rate, but it cannot be ignored that cumulative rate cuts of over 1.25% in the next 9 months is implied in the trading of fed funds futures. Rate cuts would certainly benefit strapped debt-laden consumers, but would weaken an already weak U.S. Dollar. Bernanke and company have sent mixed signals over the last few weeks about their resolve to lower rates, but this is the week of clarification and the below chart may bend in a new direction.

Our prediction remains a quarter point rate cut this week with no change in bias which would provide relief to the American consumer, but not enough to change the momentum of their mortgage and credit troubles.

State Bank of India has popped back onto the radar with an increase in CD rates for all terms from 1 month to 5 years or longer. The Indian bank, which has a FDIC-insured U.S.-based division, has U.S. operations in New York, Chicago, Los Angeles, and Washington DC. FDIC-insurance is applicable to accounts set-up online through State Bank of India's website at www.statebank.com.

1 Month CD term

5.35% APY for more than $95,000

3 Month CD term

5.25% APY for less than $50,000
5.35% APY for $50,000 to $95,000
5.46% APY for more than $95,000

6 Month CD term

5.46 APY for less than $50,000
5.56 APY for $50,000 to $95,000
5.67 APY for more than $95,000

1 Year CD term

5.46 APY for less than $50,000
5.56 APY for $50,000 to $95,000
5.67 APY for more than $95,000

2 Years CD term

5.35 APY for less than $50,000
5.46 APY for $50,000 to $95,000
5.56 APY for more than $95,000

3 Years CD Term

5.35 APY for less than $50,000
5.46% APY for $50,000 to $95,000
5.56% APY for more than $95,000

5 Years and above

5.30% APY for less than $50,000
5.41% APY for $50,000 to $95,000
5.51% APY for more than $95,000

The 5-year rates quoted above can be used for terms longer than 5 years and up to 10 years, which can be useful for investors expecting rates to fall and desiring to lock-in longer term rates.