Higher CD Rates Not Enough for Some to Move Funds
Despite the average interest rates on certificates of deposit being higher than those on money market accounts since June 2009, some consumers may still favor quick access to cash.
According to research firm Market Rates Insight, from June 2009 to August 2010, CD balances decreased by $542 billion while MMA balances increased by $584 million. Consumers shifted $5 billion of total CD balances to MMAs during the period tracked. This, despite the fact that the relative return on CDs over MMAs increased from two fold to four times.
"Clearly, the decision to shift substantial amounts of money to liquid accounts was not based on financial consideration, but rather had more to do with the human tendency to have unrestricted and immediate access to money in times of economic uncertainty," said Dan Geller, executive vice president at MRI.
Last June, the average interest rate for CDs was 1.82% and the average interest rate on MMAs was 0.96%, which means that the average CD was yielding nearly twice as much as the average MMA, MRI data showed. In August, the relative return on CDs compared to MMAs increased four times when the average CD was yielding 1.15% and the average MMA was yielding 0.31%.
"The reluctance of some savers to lock up their money in CDs even for short periods, in return for higher yields, indicates that consumers are not confident about the prospects of economic recovery any time soon," Geller said.