Aug. 13 (Bloomberg) -- Interest rates on five-year certificates of deposit in the U.S. dropped below 1 percent for the first time on record, according to Market Rates Insight.
The national average rate for the five-year CD is 0.99 percent, data from the San Anselmo, California-based firm show. That’s the lowest yield recorded, the financial research company said in a statement today.
“To see the hallmark of long-term deposits going below 1 percent is very unfortunate,” Dan Geller, executive vice president of Market Rates Insight, said in a telephone interview. “It’s the sad reality of the economic environment we’re in.”
The Federal Reserve has pledged to keep its benchmark federal funds rate near zero through at least late 2014 to help the economy. Interest payments on deposits are an expense for banks and with yields on revenue-generating loans also depressed, firms are reducing CD rates to cut costs, Geller said.
By comparison, the national average rate for the five-year CD was 6.25 percent in August 2000, he said.
The company has been collecting data on CD rates for two decades. Market Rates Insight also looked at federal funds data from prior years to determine the record low.
Investors such as the elderly looking for savings products with little risk often choose CDs because they are generally insured by the Federal Deposit Insurance Corp., Geller said.
“Today the return is so meager that you really can’t count on it,” he said.
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