The Dow hit 10,000 this week as markets topped their 52 week high. I've been surprised that the market has continued to go up in the face of mounting forecolosures and continued losses in the banking sector (Bank of America, Citi). Unemployment also continues its inexorable rise although the pundits have conditioned us to believe that it's a lagging indicator and shouldn't impact the economic recovery.

And one question that remains unanswered for me is this. If the US economy is 75% consumer driven, and consumers are tapped out, what is driving this stock recovery? If anyone knows, please tell me.

Economic indicators do point to a recovery, or at least a thawing inthe recession. Iinflation actually increased month-over-month in September, rising .2% versus .1% in August. Still, neither reading is going to get me running for the hills to panhandle for gold. In an article on the inflation readings, Sam Cass made the point that in the past two downturns, low inflation persisted well into the recovery. Indeed, the spike in prices that occurred once the economy recovered was mainly a spike in asset prices - stocks, real estate, bonds, etc. Income and other items measured by the CPI never really showed much of an increase. That's what allowed the Fed to keep rates low and feed each of the investment bubbles. Even the spike in oil in 2008 was due to trading and speculation as opposed to fundamentals.

CD and Savings Rates

So, how does this translate into savings and CD rates? Rates on Certificate of Deposits rose in the last two weeks, and the average 5 year CD rate according to the BestCashCow rate table is now at its highest since August 2009. The average for the 5 year CD has risen from 3.24% APY to 3.42% APY. Are we seeing more sparks of life? It would certainly take more yield to convince me to lock my money up for five years, especially if the economy is reviving. Perhaps this sentiment is gaining steam.

Savings rates continue their very slow drift down although the pace of descent should really be described as glacial. In the last 8 weeks, the average savings account rate has dropped by only 8 basis points from 1.80% APY to 1.72% APY. For all intensive purposes, savings rates have bottomed and are now waiting for the Fed to raise rates to begin climbing. That may not happen for some time.

Looking at the yield curve we have developed for deposit accounts we can see that the spread between savings rates and 36-month CDs reached a new high last week. This reflects the rise in longer term CD rates even as savings rates continue their glacial descent. The yield curve is steepening which is normally a sign of economic recovery and expansion.

Amboy Direct is offering an add-on eSavings CD in which the APY is based on how much is deposited into the CD. What's unique is that you can make deposits after you have opened the CD. Like a CD, an eSavings Time Deposit offers a higher rate of interest for a guaranteed period of time. In addition, with Amboy's eSavings Time Deposit, you can make additional deposits during first 6 months.

Rates are as follows:

$100-9,999: 1.00% APY

$10,000 - $100,000: 2.10% APY

2.10% APY is not the best 12-month cd rate but it's competitive. Here's how it can be used. By placing a $100 in the account at 1%, you gain the option to invest an additional 999,900 at 2.1% APY. Since rates are still headed down, that option may become valuable in the future. And if you decided not invest, all you have committed at 1% is $100.

Opening the CD can be done online and the rate locks when the application is submitted. Funding can only be done online, with the funding mechanism verified via a trial deposit into an online checking account that will serve the the funding source.

Safety and Soundess

Amboy Direct is part of Amboy Bank. Amboy Bank is based in New Jersey. It has 26 branches and $2.7 billion in assets. Bauer Financial gives Amboy Direct 2 out of 5 stars (Problematic) for its safety and soundness. The bank is FDIC insured.

ING Direct is offering a competitive 2.25% APY on a 12-month CD when it is funded with new money (they call it a Value Added CD). The rate (as of 10/7/2009) is one of the best 12-month CD rates according to the BestCashCow rate tables. It's been a long time since ING has been at the top of any rate table. It's good to see since ING has one of the easiest to use online banking interfaces. For those that don't remember, ING was an early pioneer earlier this decade in offering a stand-alone high yield, online savings account.

ING is currently paying 2.10% APY on a 1-year CD. When you fund the CD from a non-ING source, they'll add another 15 basis points for a total return of 2.25% APY. There is no minimum balance on the CD and ING has an easy account opening process. Everything can be done electronically and funding is done via an ACH electronic transfer from another bank account. Transferring money out can also be done via an ACH electronic transfer and in my experience takes between 2-3 business days. ING allows joint accounts, living trust accounts and IRAs.

ING Direct has adequate ratings for safety and soundness. Bauer Financial gives it 3 out of 5 stars (adequate), down from 4 stars last year. The bank has $90 billion in assets, making it the largest "online only" player out there.

Please share any experiences you have with ING and the Value Added CD.

See the best 12-month online CD rates here.