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Fear of Higher Inflation Prompts Short-Term CD Abandonment

Credit union members and bank customers were clearly anticipating that inflation would rise in late 2009 or early 2010 due to the massive liquidity in the market.

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Credit union members and bank customers were clearly anticipating that inflation would rise in late 2009 or early 2010 due to the massive liquidity in the market. That reduced the appeal of locking in short-term deposits at relatively low interest rates. It’s important to note that only short-term deposits (up to one year) are on the decline. Anticipating higher interest rates, credit union members and bank customers continue to shy away from short-term deposits. They realize that as long as deposit rates remain low, the net return on their money is going to stay in negative territory when adjusted for inflation.

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Peter Westerman

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