There were several reports over the past week which seemed to indicate that the economy has stabilized and maybe even turned the corner. The latest GDP figures showed that the economy grew by 5.7% in the fourth quarter of 2009, above economists expectations. In addition, the unemployment rate in January dipped below 10%.

Is this cause to celebrate? Not yet, but it's reason to be optimistic. An end to things getting worse is the necessary prelude to things getting better.

Despite all of this, if you look at the Federal Funds Rate predictions chart (below), you can see that markets do not anticipate a rate increase through the June Fed meeting. I suspect the rate will stay pegged at 0-25% a good deal longer, and potentially through the rest of 2010.

A low Fed Funds Future rate means low rates on savings accounts, money markets, and certificates of deposit.

CD and Savings Rates

Most savings and CD rates hit record lows last week, except for the 5-year CD, which continued to show gains in yield. Average savings rates reached a new record low of 1.46% APY, down 1 basis point from 1.47% APY the previous week. Average one-year cd rates fell 3 basis points to 1.82% APY. Average three-year cd rates dropped two basis points to 2.61% APY.

The only glimmer of good news were five-year CD rates which for the second week in a row rose, moving from 3.20% APY to 3.29% APY.

This week I've expanded the spread analysis I've done in the past to include the ratio of 5-year average CD rates to 1-year average CD rates. The chart also continues to track the ratio of average 3-year CD rates to the average savings rate, as reported by the BestCashCow rate tables.

As you can see, both the cd spread and the savings/cd spread are near record highs. What does that mean? It means as a depositor, you are being compensated more highly for putting your money into a longer-term deposit account then you were even a year ago. This isn't a suprise as savings rates have collapsed while longer-term CD rates have come down much more gradually.

The ratio also leads to an interesting question. At what point should an investor consider opening a 2-5 year CD? You can now earn 1.5 percentage points more by opening a 5 year CD versus a 1-year CD. If interest rates stay low for the next couple of years, as is possible, then perhaps this elevated spread makes opening the account worth it.

Next week, I'll model the different scenarios to try and develop a better understanding under what scenarios it will make sense to open a longer-term CD.

Regardless of this analysis, CD laddering may be a good way to smooth out the return you receive from your CD portfolio. Several banks have come out with breakable CDs, that allow users to withdraw money penalty free, and still other banks are lowering the withdrawal penalty for removing money before maturity.

iGOBanking.com is offering a 5-Year CD that pays 3.55% APY. That's currently the best 5-year cd rate according to the BestCashCow rate tables.

Whether you want to park money in a 5-year CD is another question. Many investors and economists believe that longer-term rates will go up due to government borrowing and a recovering economy. This is especially true for longer-term rates. As BestCashCow's weekly rate update noted, longer-term rates have already stabilized, remaining flat since August 2009. Rates could go up, or they could remain flat for an extended period of time. If you are cd laddering, then this offer may be especially appealing.

Opening an Account

Accounts can be opened online and are available nationally. There is a minimum balance of $1,000. Once the application is submitted, the rate locks for 10 business days. Funds can be deposited via an electronic ACH transfer a check. The bank uses a trial deposit system to verify the funding account belongs to you.

The early withdrawal penalty for the CD is equal to six months simple interest on the amount withdrawn. This account will automatically renew at maturity. You may prevent renewal if you withdraw the funds in the account at maturity (or within any grace period mentioned below) or the bank receive written notice from you within 30 days from maturity.

About iGOBanking

iGObanking.com is a division of Flushing Savings Bank, FSB, located in New York. The bank has $4.1 billion in assets and is rated 4 out of 5 stars (excellent) by Bauer Financial for its safety and soundness. Flusing Savings Bank is FDIC insured.

This is not the first cd offer we have covered from iGOBanking. In November 2008, they offered an attractive 9-month CD paying a whopping 4.15% APY. Times have changed.

Understanding the mediums for risk-less investments, means understanding the various products banking institutions sell. A bank is a business just like the local coffee shop, electronics store, university, or hospital. Banks offer checking and savings accounts, money market deposit accounts, certificate of deposits (CD) and many other products.

The practice of CD laddering maximizes the use of the varying interest rates and maximizes liquidity. This practice is implemented by putting a like dollar amount into a series of CDs each maturing in intermediate intervals, i.e. a 6-, 12- and 18- month or a 1-, 2- and 3-year. Once this initial CD has matured, that may be reinvested in the greatest length term of the investment chain. If the chain follows a 6 month pattern, once the initial 6-month CD matures, that would be reinvested in an 18-month CD, similar with a 1-year chain – reinvested in a 3- or 5-year CD.