Shouldn’t CD rates be ready to rocket?

Key Points

• Interest rates on savings have nowhere to go but up
• Without a major change in market conditions%2C higher rates will take time to appear
• And some financial institutions are making %27unscrupulous%27 offers

Shouldn’t interest rates on CDs be nearly ready to start igniting like the rockets on the Fourth of July? After all, didn’t Fed Chairman Ben Bernanke hint that interest rates could be heading higher?

Hold off lighting those sparklers, though. Not only is July Fourth over. But ssavers could be engaging in some wishful thinking, experts warn, if they’re expecting to see rates on one-year certificates of deposit explode to 3% this year.

To be sure, there’s a chance that CD rates may have at long last hit rock bottom.

“All interest rates are headed higher over the next several years,” said Mark Zandi, chief economist for Moody’s Analytics.

“It won’t be a straight line up for interest rates, but they will be higher,” he said.

Savers might want to consider investing in short-term CDs, such as six-month or 1-year CDs, to take advantage of higher rates down the road, Zandi said.

No doubt, CD rates are at Death Valley lows this summer. The average rate on a one-year CD was 0.24% in late June; the average for a five-year CD was 0.78%, according to Bankrate.com.

Yes, drivers couldn’t even fill up an SUV’s gas tank this summer on the interest you’d make on $10,000 saved in a typical one-year CD.

While mortgage rates have edged upward, though, it could be quite some time before savers benefit from significantly higher rates. Many banks don’t need to pay high rates to attract deposits right now.

“Banks can’t lend out the deposits they have now because loan demand is still weak,” said Greg McBride, senior analyst for Bankrate.com.

“They’re sitting on a pile of deposits, but there’s not enough loan demand to soak all that up.”

Savers need to do some extra work to find even 1% on many CDs.

Shopping around for the highest yields could get savers something closer to 1% on a one-year CD and 1.6% to 1.76% on a five-year CD, according to Bankrate.com’s research.

But these are unusual offers and not necessarily at the bank around the corner. Instead, some of the higher rates are offered by online banks.

GE Capital Retail Bank, for example, had a one-year CD with an annual percentage yield slightly above 1% as of July 1 for a minimum deposit of $25,000, according to the Bankrate.com site.

The GE Capital Retail Bank site is https://banking.gecrb.com. The GE Capital Retail Bank phone is 866-226-5638.

Ally Bank had what it calls a “No Penalty 11-Month CD” with no minimum deposit at 0.85% as of late June. The CD has no penalty if the money needs to be withdrawn after the first six days of putting money into the CD.

Ally Bank had a one-year CD with a yield of 0.94% but that CD has a penalty if the customer withdraws the money before the CD matures. Rates are at www.ally.com or 877-247-2559.

CD rates can change based on market conditions.

Locking up all of one’s money in a five-year CD right now just doesn’t make much sense for many savers, given the outlook for rates.

Savers who are obsessed with grabbing the highest rate possible could be setting themselves up for trouble, too.

And interest rates are so low, frankly, that savers could be vulnerable to unscrupulous offers.

The Federal Deposit Insurance Corp. issued a warning to consumers about products that are advertised as a CD but are not FDIC-insured, or might be offered as part of another marketing ploy.

A broker might advertise a 5% rate on a six-month CD, according to the FDIC. But when a customer calls, he or she is told to come into the office for more information. The customer might then be told the 5% only applies to $1,000 for a limited time, not the full CD term or the entire balance.

Or a promotional CD rate might be high for a short time with some deposit brokers,but the unsuspecting saver is later steered into putting money into a non-insured investment that might be a poor choice for the consumer but have high commissions for the seller.

In one specific case, the FDIC said, a foreign bank issued a high-rate brokered CD, which was not protected by FDIC insurance. But the marketing materials gave customers the opposite impression.

While deposit brokers can negotiate higher rates, the FDIC warned that obtaining a CD through a third party may involve more risk than putting money directly in a CD at an insured bank.

So if you’re shopping around for a CD, take the time to make sure that you don’t get burned this summer, as well.

Contact Susan Tompor at stompor@freepress.com or 313-222-8876.