Savings and CD rate averages continued to decline last week, with the one year CD average falling from .428% to .425% APY. Online savings rates from the banks offering the top 30 nationally available rates remained steady at .428% APY. As the chart shows, average CD rates have headed inexorably lower while average online savings rates as followed by BestCashCow have remained somewhat steady over the past year.

Should a saver open a savings account or a CD? A shorter-term CD or a longer one? The chart below shows the comparison between the yield of a 5-year CD and a 1-year CD. Notice that this difference has shrunk considerably over the past year as the yield on 5-year CDs has dropped by more than the yield on a 12-month CD.

While the spread started the year at 1% or 100 basis points, it is now .793. As a comparison, in 2008, this spread stood at .43% while in 2010 it went as high as 1.56%. So right now, it's somewhere in the middle. Why does this matter. Because back in 2010 banks were paying a saver a lot more to invest in a 5 year CD versus a 1 year. Today, banks are giving about half the premium they did a few years ago to lock up your money for 5 years. In 2012, I advised savers to consider investing in 5-year CDs because of this premium, becasue economy looked stuck for quite some time, and because inflation did not appear to be a problem. Now, with the premium down, and the economy growing (albeit not that fast) it's a bit of a harder case to make. Consumers might want to consider laddering their CD portfolio in this rate environment.

What about the comparison between savings and CDs?

This spread has actually been growing. Online savings rates have, for the most part, maintained their rates while CD rates continue to fall. For short term savings, it appears to make more sense to park money in an online savings account versus a CD.

Note that research I conducted and subsequently published in the Wall Street Journal (The Hunt for Higher Bank Yields) concluded that when considering where to deposit money, consumers will get the best savings account rate from an online bank, and the best CD rates from local, brick and mortar banks. That's why I've used online savings and money market accounts for this analysis.

Interest Rate Outlook

So, which way rates? In its FOMC statement released on October 24, 2012, the Fed reiterated that it plans to keep rates at 0% at least through 2015.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Inflation remains low, unemployment high, and economic activity subdued. In addition, reports to us from banks continue to indicate that most of them have more deposit money than they know what to do with. As the Fed drives down the yield on Treasuries by extending the maturities it holds, it will require banks to lower their deposit rates. Many banks are parking their excess cash in Treasuries. Eric Dash and Nelson D. Scwartz did a nice article on this for the NY Times: Banks Flooded with Cash They Can't Profitably Use.

There is hope, albeit dim, on the horizon for savers. The economy is growing with housing showing some strong gains in sales and prices. After four years of a housing crush we may be finally making some progress. Marketwatch also had an article (Countdown to Change at the Fed) on how the election might change the dynamic at the Fed. No matter who wins, Chairman Bernanke will most likely be departing soon and the new Chairman may be more inclined to raise rates.

Bloomberg published an interesting article entitled Sorry, U.S. Recoveries Really Aren’t Different by economists Carmen M. Reinhart and Kenneth S. Rogoff that discusses their research on how economies fare after a recession or depression brought on by a banking crisis. They examined similar recessions/depressions in U.S. history.

"So how many years did it take for per-capita GDP to return to its peak at the onset of the crisis? For the 1873 and 1893 (peak is 1892) crises, it was five years; for the Panic of 1907 (peak is 1906), it was six years; for the Depression, it took 11 years."

Past economic downturns suggest that it takes between 5-11 years to patch up the damage from a banking created crisis. We're now four years into our recovery. The "Great Recession" does not compare to the Depression so let's say 5-6 years is what it will take. That means by next year or 2014 we will start to see some real improvement.

My take: rates will continue to drift lower for the next 12 months. After that, it's hard to tell. I suspect that rates may go up before 2015.

For now though, savers can make the best of a tough situation by getting the very best rates on their money. Remember, even in today's environment, there is competition for your cash.

I hope this is helpful. If it is, let me know and I'll keep writing. Drop me a note or post a comment below.

Have a nice weekend. Until next week...

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Election Results Expected to Have Minimal Impact on How Americans Save

BestCashCow Releases Results of Survey on Consumer Banking Habits

Newton, Mass. (October 18, 2012) -- BestCashCow.com, an online resource for comprehensive bank rate information, today released the results of its user survey on trends in banking and savings decisions. The survey, conducted between September 28 - October 16, 2012, polled 653 users nationwide on topics ranging from how they choose a bank to whether their savings decisions will be impacted by the upcoming presidential election.

“During this campaign season, candidates have focused a great deal of attention on the economy and its impact on American households,” said Sol Nasisi, president of BestCashCow. “However, most Americans, regardless of age or where they live, have not changed their savings habits significantly in the past four years and don't expect the election results to have a meaningful impact on their ability to save going forward."

Regardless of who wins the election, 76% of savers say it won't have a significant impact on how they manage their money. That number drops to 60% for those over 65. “Older savers may be more anxious about the election since any changes to Social Security and Medicare will have an immediate impact on their finances,” said Mr. Nasisi.

Great Recession Hasn’t Impacted Savers’ Habits

Despite the record low interest rates brought upon by the Great Recession and championed by the Fed, consumers are keeping their money safe in the bank. Eighty-one percent of survey respondents said that record low interest rates have not pushed them to withdraw their money from the bank. In addition, a majority (53%) of respondents said that their savings and investing habits have not changed over the past four years despite scars of the financial collapse, the great recession, the increase in the Federal debt, and the persistently high unemployment rate. In fact, 74% of the 65+ respondents say they haven't made any significant changes to their savings and investment habits in the last four years.

"Savers haven’t recovered from the stock market crash in 2008 and see banks as the safest place to park their money, despite record low interest rates,” noted Mr. Nasisi. “Bankers beware, though. Savers are always looking for a better deal and sixty-five percent of respondents said they would be at least somewhat likely to open an account at another bank that offered a premium on interest rates."

A Majority of Savers Use Technology to Manage their Finances

While Presidents come and go, and the economy rises and falls, the Internet has steadily become a major factor in how savers relate to their bank or credit union. “Ten years ago, the Internet had just started to impact the banking world. Now it is a major factor,” noted Mr. Nasisi. Survey results indicate that 55% of consumers do the majority of their banking transactions via computer, while 26% use the Internet to find a bank they want to use. In choosing a bank, 74% of respondents said they were somewhat or very influenced by online reviews. Mobile usage, however, has not yet made a dent in online banking. In fact, only 4% of respondents use mobile as their primary means of conducting banking.

Additional Survey Data

Below are the survey questions and some select findings.

Q. How much will this year's election impact your savings and investing decisions?

• 76% of all savers surveyed say that this year's election will not have a significant impact on their savings and investing decisions.
• 60% of 18-25 year olds believe the election will have minimal or no impact on their savings and investing decisions, while 40% of those 65+ say it will have a significant impact.

Q. Have low interest rates made you move money out of a bank?

• 82% of respondents have not moved their money out of the bank in response to low interest rates.

Q. Have your savings and investing habits changed in the past your years?

• 53% of all respondents say that their savings and investing habits haven't changed over the past four years.
• 74% of those over 65 say it hasn't changed.

Q. How likely are you to open an account at another bank if they offer an extra 1% yield?

• 65% of all respondents would consider moving their money to another bank if they could earn an extra 1% yield.

Q. How do you conduct most of your banking transactions?

• 55% of all respondents conduct their transactions online.
• Only 44% of respondents 65+ do most of their banking online. The branch is still favored by this group.

Q. Of which of the following institutions are you a customer?

• 36% of all respondents reported having some relationship with a credit union.

Q. How do you find and research a local bank when you want to switch?

• 40% all of respondents choose a local bank that they are familiar with when they decide to switch.
• Those over 65+ show a much stronger preference that the general population for choosing a bank they already know and are comfortable with.
• The Internet (26%) is the most popular means of discovering new banks.

Q. When choosing a bank or credit union, what matters the most to you?

• Although 34% of all respondents say location/convenience is the most important factor in choosing a bank, just as many (32%) in the 65+ bracket say rates are most important. Only 14% of all respondents say customer service is most important to them.

Q. How influenced are you by reviews of banks found online?

• 74% of all respondents are somewhat or very influenced by bank reviews they read online.

For additional questions about this survey, please contact Wendy Schoenfeld - wschoenfeld@bestcashcow.com.

About BestCashCow

BestCashCow is a comprehensive resource for the best rates on savings accounts, CDs, mortgages, and more. BestCashCow was founded in 2005 and today tracks more than 7,000 FDIC-insured banks, 7,000 credit unions, 130,000 local branches, and more than 2 million local and national rates. BestCashCow provides banks and credits unions direct access to add new products, update rates, and modify listings. By partnering with financial institutions, BestCashCow is able to provide offers and rates not found anywhere else. For more information, visit www.bestcashcow.com.

BestCashCow Names Fastest Growing Banks in California

American Plus Bank leads the list with 56.4% Growth in assets

Newton, Mass. (October 9, 2012) – BestCashCow, an online resource for comprehensive bank rate information, today released its list of the top five fastest growing banks in California. Banks were ranked based on organic growth of assets and return on equity for the year ending June 30, 2012.*

Arcadia-based American Plus Bank, N.A. tops the list with 56.4% growth in assets and a 10.8% return on equity. Founded in 2007, American Plus is an independent, community bank serving the San Gabriel Valley and surrounding areas in Los Angeles County. Its growth last year was driven primarily by growth in real estate lending, including a 462% jump in mortgage loans.

Rounding out the list of fastest growing California banks are:

• Silvergate Bank (56.2% asset growth, 7.2% return on equity)
• Vibra Bank (43.7% asset growth, 10.6% ROE)
• Lighthouse Bank (37.6% asset growth, 9.2% ROE)
• Valley Republic Bank (36.1% asset growth, 4.4% ROE).

All of these banks grew by expanding their loan business and increasing deposits, without any significant mergers or acquisitions.

"Despite the pressure of low interest rates, many small and community-based banks are thriving," said Sol Nasisi, president of BestCashCow. "They are able to do so because they have the right formula to succeed in today's economy. They have well-defined markets, entrepreneurial cultures and solid balance sheets and at the end of the day, success breeds success. As these banks continue to grow and effectively compete in their local markets, more and more consumers are looking to them for their next mortgage, business loan or credit card."

About BestCashCow

BestCashCow is a comprehensive, unbiased resource for the best rates on savings accounts, CDs, bonds, mortgage rates and more. BestCashCow was founded in 2005 and today tracks more than 7,000 FDIC-insured banks, 7,000 credit unions, 130,000 local branches, and more than 2 million local and national rates on checking and savings accounts, CDs, mortgages, bonds, dividend stocks, and home equity loans and lines of credit. BestCashCow allows banks and credits unions direct access to add new products, update rates, and modify listings. By partnering with financial institutions, BestCashCow is able to provide offers and rates not found anywhere else. For more information, visit www.bestcashcow.com.

* Banks with negative net income and banks that merged or were acquired during this period were excluded.