CD Market Heating Up

By Annys Shin
Washington Post Staff Writer
Sunday, November 16, 2008

It's hard to find an investment you can trust these days. Not blue chips. Those investors are looking pretty blue themselves. Steady money-market funds haven't been all that steady. And once high-flying hedge funds -- never for the faint of heart anyway -- are crashing to earth.

Now consider the humble certificate of deposit.

To jittery consumers, the CD suddenly looks like more than just a good place to park birthday checks from grandma. Banks are busy trying to one-up each other on rates to land customers. In advertisements on ATM screens around the Washington area lately, Citibank is offering 3.5 percent on a six-month CD. Online, GMAC, the finance arm of automaker GM, is advertising 3.9 percent for a six-month deposit. Not to be outdone, ING Direct is hawking its Orange CD at 4.25 percent. All three are far higher than the national average for a six-month CD of 2.13 percent, according to

Even the highest rates may not be eye-popping, but a 4 percent return over the next six months looks lucrative when you consider the battering that stocks are taking almost every day.

"It's a perfect marriage at a time when the stock market has been very volatile and the economy is weakening," said Greg McBride, senior analyst for, which offers consumers information on financial rates.

CDs are deposits on which banks pay a fixed rate of interest for a fixed period of time starting at six months. They are federally insured up to $250,000. The financial crisis has created something of an anomaly in the CD market. Banks are pushing up CD rates even though the Federal Reserve has been cutting short-term interest rates. In normal times, CD rates rise and fall in tandem with short-term rates. But because banks are so desperate for deposits to bolster their finances -- and in the long run to loosen up credit -- they are willing to offer attractive rates, even if it means smaller profits.

The CD market started heating up about six months ago, said Nancy Davis, senior vice president and director of marketing for Acacia Federal Savings Bank, which has a branch in Falls Church where CDs have been a bedrock of its business for 23 years.

But the scramble for customers really started in recent weeks.

"There's a lot more competition for the CD business, particularly from the larger commercial banks such as Wachovia, who in the past didn't compete for the CD business," Davis said.

"Certainly the market is competitive," said Ferris Morrison, a spokeswoman for Wachovia, based in Charlotte, N.C. "We see [CDs] as one tool to drive additional customer acquisitions."

So far, Acacia is holding its own against the big guys. Since Oct. 6, it has been offering 4 percent interest on a 12-month CD with a minimum deposit of $500. As of Friday, the only banks offering CDs in the Washington area that came close to matching Acacia were Wachovia and Capital One -- with an offer of 4 percent on a minimum deposit of $1,000.

Because rate offers change, the most efficient way for consumers to shop around is online, where they can also get access to nationwide offers from banks that may not have branches in their area.

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