This economy is nothing if not full of surprises. Wall Street took a step back in mid-May when a report on April retail sales showed a surprise drop. This is bad news for stock investors, obviously, but it also creates a dilemma for more conservative investors, who have been wondering whether to accept relatively low interest rates or wait for those rates to go higher.

Who knows what new development lurks around the next corner, but it does seem certain that if you're waiting for this economy to return to normal, you'd better not hold their breath. "Normal" is a long way off. It's better to recognize these unusual circumstances for what they are, and make the best of current conditions.

For example, there are two ways to look at CD rates. One is that they are at or near historical lows, and are likely to return to more normal (i.e., higher) territory. Another is that current CD rates may be with us for a while, and for the time being it would be wise to make the best of the situation.

New Clouds on the Economic Scene

The Commerce Department reported that US retail sales fell by 0.4% in April. To add insult to injury, they also revised their previously-released March retail sales figure downward, from a 1.2% decline to a 1.3% decline. At around the same time, a sharp jump in home foreclosures was reported for April.

What made this news all the more jarring was that it appeared to dash hopes that the economy was finally on the right track. Experts from Wall Street to the Federal Reserve were expressing signs of optimism. For the time being though, it appears the man on the street does not, or cannot, share that optimism.

Implications for Interest Rates

For the most part, deposit vehicle investors can afford to be unmoved by negative economic news. However, weak economies generally correlate with low interest rates. 1-month CD rates have been at or near historical lows for a while, and 6-month CD rates recently joined them. In this environment, it would be natural for CD investors to hope for some positive economic news to push rates higher. Apparently, they will have to wait a little longer for that turnaround.

What to Make of CD Rates Now

So, what if you have money to invest now? Do you simply turn up your nose at low CD rates, and wait for a better opportunity? Well, if the economic outlook is getting cloudy again, good alternatives may be hard to find. As for the current level of interest rates, while history is an important teacher, it is important not to let history skew your perceptions too much. Right now, the 5% CD rates of a few years ago might seem like a high interest rate environment, but at the time it certainly didn't look that way to anyone who remembered the double-digit interest rates of the 1980s.

Dead money is worse than earning no return at all. You can still earn higher interest rates by moving out to longer CDs, and even more by shopping around. If low rates are going to be with us for a while, you'd better get used to it by learning how to make the best of them.

Sources:

Les Christie • Foreclosures: "April was a shocker" • May 13, 2009 • http://money.cnn.com • http://money.cnn.com/2009/05/13/real_estate/April_foreclosure_stats/?postversion=2009051310

Federal Reserve • http://www.federalreserve.gov • http://www.federalreserve.gov/releases/h15/update/

Veronica Smith • US April retail sales show surprise drop • May 13, 2009 • http://www.news.yahoo.com • http://news.yahoo.com/s/afp/20090513/bs_afp/useconomyretailsales_20090513210409