Bank customers choosing savings and money market accounts over CDs
September 14, 2010
Amid the tough economy, consumers are keeping more of their cash liquid and less of it tied up in CDs, according to Market Rates Insight, a San Anselmo, Calif. market research firm for banks and credit unions.
Although total security deposits dropped in the second half of 2010, deposits in money market accounts, savings accounts and checking accounts actually rose by $171 billion, or 3.2 percent, the firm said. Time deposits like CDs dropped by $200 billion, or 8.5 percent.
The biggest increase in deposits was seen in money market accounts, which gained $138 billion. This was followed by other types of savings accounts, which were up $76 billion, and checking accounts, which were up $43 billion, according to Market Rates Insight.
However, the company's latest National Pricing Indicators report showed that deposits overall are decreasing for the first time in 20 years.
Balances dropped by $29 billion in the first half of 2010, finally showing some sensitivity to low interest rates. Prior to that deposit balances had been on the rise since the first quarter of 1992, when balances totaled $3.26 billion. They peaked in fourth quarter of 2009 at $7.69 billion, then fell 0.4 percent to $7.66 billion in the first half of 2010, Market Rates Insight said.
Best CD rates beat highest interest rates on money market accounts
Best CD rates for one-year CDs are about twice the rates for money market accounts and savings accounts, but interest rates on all deposits are so low that savers may figure that the extra earnings from a CD aren't worth locking away money for the term. Also, savings and money market accounts give easier and faster access to cash, and with these accounts there's no early withdrawal penalty. With traditional CDs, however, you forfeit three months of interest if you cash them in early.
Interest rates on CDs and money market accounts aren't expected to improve anytime soon - not with the lackluster economy and national unemployment at over 9 percent. The best that savers can do is compare bank rates online to get the highest rates possible, however low they may be overall.