Interest rates

[Molly]

There go interest rates on CDs and savings accounts. Great for borrowers, terrible for savers.

[dado potato]

As of 3/16 there are two local banks paying 1.96% and 2.11% fixed rates on a 5-year CD. I don't see any nationally available rate higher than Marcus (Goldman Sachs) 1.9%.

If a person has savings to set aside for 5 years, I think it would be worth considering Treasury I Bonds, limited to $10,000maximum purchase per year, per social security number. Through April 30, I Bonds pay 0.2% "fixed rate" (real yield). The fixed rate will be reset for bonds bought May 1 … quite possibly reduced to zero. In addition to the fixed rate, I Bonds pay an "inflation-adjusted rate" (based on the CPI-U). The compounding return on the I Bond would depend on the inflation in future years.

If over the coming 5 years,
inflation averages 1.5%; the I Bond would pay 1.7% total rate.
2.0% average inflation; I Bond total rate 2.2%
2.5%; 2.7%
3.0%; 3.2%.

If the best available CD rate is 1.9% (fixed), the currently available I Bond will pay more in total rate any year when the CPI-U is greater than 1.7%. (The CPI-U from Feb 2019 to Feb 2020 was 2.3%)


I agree, the zero interest rate policy is not of much value to savers... it sticks savers with a negative real return on their savings, after inflation is taken into consideration.