As the rate of inflation ticks up, some credit unions and banks are experiencing an increase of interest in relationship certificates of deposit.
New data from research firm Market Rates Insight showed from March 2010 to March 2011, the number of relationships CDs offered nationally by banks and credit unions increased by 1.48%.
Within the same time period, the national inflation rate has increased from 1.15% in August 2010 to 2.68% in March 2011. Relationship CDs tend to require additional accounts with a financial institution.
The same trend occurred from October 2006 to August 2008, which was the previous inflationary period, according to MRI. During that time, the number of relationship CDs grew by 3.4% while the annual inflation rate increased from 1.31% to 5.37%.
Similar to the current inflationary cycle, no other type of CD showed a meaningful increase in volume and some CD types have decreased in volume, the data showed.
“Contrary to common belief, the volume of bump CDs, which [are] considered ‘inflation proof’ CDs, declined in the last inflationary cycle,” said Dan Geller, executive vice president of MRI.
Geller said the volume of bump CDs in that last cycle from October 2006 to August 2008 declined by negative 0.16%. The drop almost mirrors the period of the past 12 months at negative 0.41%.