Interest Rates Today

The frequency that a financial institution compounds interest on your deposit. Banks and financial institutions routinely use compounding to pay you a higher interest rate.

For example, a financial institution may be offering a CD that pays interest at 10%. If the institution does not compound interest, you will receive 10 percent of your investment as interest income at the end of a year.

But if the institution compounds interest every three months (quarterly compounding), you will earn an interest rate of 10.38%. If the institution compounds interest monthly, you will earn 10.47%. And if it compounds daily, you will earn 10.52%. For a $10,000 deposit, this is an extra $52 in interest that you earn.

The Federal Reserve is ready to lower interest rates again to brace the wobbly economy even as zooming oil prices spread inflation, Chairman Ben Bernanke signaled to Congress on Wednesday.

He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.

For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.

“The economic situation has become distinctly less favorable” since the summer, the Fed chief told lawmakers.

Since then, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing, further weakening the economy.

The country should prepare for “sluggish economic activity in the near term,” Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.

Online banks continue to cut rates on their savings accounts and CDs. In addition to cutting rates, AmTrustDirect added tiers to its e-Money Market Account. Balances under $25K now earn 3.50% APY. You’ll need $50K to earn the maximum yield of 4.00% APY. Look for other online banks to start implementing tiers as they cut rates. It helps hide the full extent of their rate cuts.

Here are some of the recent rate cuts and decreases:

• AmTrustDirect e-Savings / e-Money Market – 4.10% APY for e-Savings / 4% APY ($50K+) 3.75% APY ($25K+) 3.5% APY for e-Money Market (down from 4.60% e-Savings / 4.50% all tiers e-Money Market)
• Corus MMA – 4.32% APY (down from 4.50%)
• Flagstar MMA – 4.25% APY (down from 4.40%)
• FNBO Direct Savings – 3.85% APY (down from 4.30%)
• Capital One/Costco MMA – 3.70% APY (down from 4.05%)
• EmigrantDirect Savings – 3.60% APY (down from 4.05%)
• BancoFortuna Savings – 3.60% APY (down from 4.05%)
• GMAC MMA – 3.50% APY (down from 4.00%)

Washington Mutual currently has one of the highest CD rates for large online banks, with a 4.0% APY rate on their 6 month CD. This is a better rate than both Wells Fargo and Bank of America are currently offering.

On top of this CD, they also have other certificates with rates ranging from 3.51% to 3.75% with 1 year to 5 year terms. Minimum deposit to open a CD with WaMu is $1,000.

To obtain the APY for the effective date on the day you apply, the Online CD account must be funded within seven (7) calendar days. If received on or after the eighth calendar day, the then effective date APY will be applied. Certificate of Deposit accounts earn a fixed interest rate and APY for the selected term. Fees may reduce earnings. Penalty for early withdrawals apply.

Besides their CDs, WaMu has a high yield savings/checking account combo that currently has a 4.25% APY.

Average CD yields slid this past week, with one-year CDs giving up 2 basis points to end up at 3.52 percent, and five-year CDs dropping 3 basis points to 3.73 percent.

Yields on jumbo CDs also fell. One-year jumbos finished at 3.88 percent, 3 basis points below last week, and five-year CDs dropped 2 basis points, to end up at 3.93 percent.

Yields: 3.52 percent (1-year CD yield); 3.87 percent (5-year CD yield)

CDs continued to slide down this week, following lower short-term interest rates, with the average yield on a one-year CD dropping 2 basis points to 3.52 percent. The yield on five-year CDs dropped 1 basis point this week, to 3.87 percent.

Jumbo CDs also kept up the downward trend, with the one-year CD slipping 2 basis points to 3.91 percent, and the five-year dropping 1 basis point to 4.09 percent.

After the most recent Fed rate cut, several online banks have quickly lowered their rates. These include:

1. GMAC Bank’s Money Market Savings dropping from 4.75% to 4.50%
2. Countrywide’s SavingsLink dropping from 5.50% to 5.35%
3. Presidential Bank’s Premiere Savings dropping from 4.90% to 4.60%
4. Bank of America’s Money Market Savings from 4.45% to 4.29%
5. ING Direct’s Saving Account from 4.30% to 4.20%

With falling interest rates and no end in sight, it may be wise to lock in a high CD rate while you still can.

Emigrant Direct’s online bank targeting the Hispanic/Spanish market, BancoFortuna.com continues to offer a yield of 5.05% APY on its online savings account. On the other hand, it’s parent Emigrant Direct lowered the yield on its savings account from 5.05% to 4.75% at end of September.

I used to bank with Emigrant Direct, but with better savings rates such as Washington Mutual’s 5.00% Savings Account I’ve long since moved my funds elsewhere. It might also be a good time to lock in a good CD rate since rates are generally being lowered.

The effect of last month’s Fed rate cut continues to be felt in the banking industry. Some banks moved fast with large rate cuts (HSBC Direct, ING Direct), others had their rates creep down (WTDirect, Amtrust Direct) and yet others seem to be planning on waiting before cutting. Etrade is one of the wait-then-cut banks. It dropped the yield on its Complete Savings account from 5.05% to 4.70% APY today.

Perhaps there needs to be another category for the banks that are making two big rate cuts. E-LOAN did this with two 25 basis point rate cuts. Now GMAC Bank has done it. GMAC Bank dropped its Money Market Yield from 4.90% to 4.75% APY. Before the Fed rate cut, it had been 5.30% APY. If you’re looking to lock in a high rate, be sure to check out the current cd rates.