Bank CD yields take a sharp drop after Fed’s rate cut

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People who’ve waited to lock in yields on bank savings certificates will find much slimmer pickings now, one week after the Federal Reserve slashed its key short-term interest rate to as low as zero.

A weekly survey of CD yields nationwide shows the average yield on six-month certificates fell below 2% for the first time in nearly four years, to 1.94% as of Tuesday from 2.11% a week earlier, according to rate tracker Informa Research Services.

The average yield on 12-month CDs fell to 2.26% from 2.42% in the period.

Those rates apply to accounts with minimum balances of $25,000.

CD yields have been drifting lower since early October as the Fed has pumped trillions into the banking system in an effort to reduce short-term interest rates and spur more bank lending. The average 12-month CD yield was 2.63% on Oct. 7.

Although a drop in yields was expected in the last week given the magnitude of the Fed’s cut -- the central bank on Dec. 16 hacked its key rate to a range of zero to 0.25%, from 1% -- some analysts figured many banks would try to hold the line at these paltry levels, to hang on to depositors.

Instead, ‘This was the biggest drop we’ve seen in a while,’ said Ray Montague, head of deposit research at Informa in Calabasas.

There are many banks paying better-than-average rates, of course. But finding 4% yields on CDs of 12 months or less is a lot harder than it was even a few weeks ago. Do-it-yourself CD shoppers can check out Bankrate.com or Money-Rates.com, for starters.

Bank depositors still are doing a lot better than investors in Treasury securities: Informa’s national average six-month CD yield of 1.94% compares with a 0.26% yield on six-month T-bills.

The U.S. government’s backing of bank deposits and Treasuries is essentially the same. If you’re looking to put money away for a year or less, it doesn’t make much sense to take Treasuries over a bank CD.

-- Tom Petruno