Short-term certificates of deposits in Iowa are still a better deal for many savers than sticking their money in a savings account, according to a new study, although that isn’t the case in a growing number of states.
The interest rate spread between a six-month certificate of deposit and a standard savings account was 0.17 percent on July 10, according to the website gobankingrates.com.
Savings account interest rates in Iowa averaged 0.25 percent, compared to 0.42 percent for a six-month certificate of deposit.
The wisdom of locking into a six-month CD for investors is questionable when the difference between savings account rates and CD rates is 0.10 percent or less, according to gobankingrates.com. That seems to be the case in 42 percent of the states. In Delaware, average savings account rates are actually higher than CD rates.
Savers might wish to avoid locking in to a CD even for six months when the rate differential is so low, according to gobankingrates.com, because most CDs have restrictions that include financial penalties if the funds must be withdrawn early for a sudden financial need or emergency.
The findings were based on interest rate yields for a $10,000 deposit as of July 15, 2012. The study was based on gobankingrates’ database of rates at 4,000 or more financial institutions.
Longer-term CDs appear to be the best alternative for savers who want better returns in the current low interest rate climate, the study suggested. It said savers opting for one-year CDs or two-year CDs can typically get rates above 1 percent, and sometimes 2 percent.
Neither a six-month nor a longer-term one or two-year CD is likely to do much more than keep up with inflation, according to a recent calculation by the American Institute for Economic Research.
When the 2013 cost-of-living adjustments are announced by the Social Security administration on Oct. 16, the group is expecting it to fall between 1.5 and 1.7 percent. That compares to a 3.6 parent increase that senior received for 2012.