How do Certificates of Deposit fluctuate postively and negatively? I dont see why rates are going to 4% now..?

Question

Are they effected by the economy or what? How do you gauge if you want to lock in, or are they typically short-term?

I had a great 6 month at 5%, but it went down to 2.5%...

Answer 1

Every bank sets its own CD rates based upon a number of factors including:

1. At what interest can they lend the money at

2. What type of loan do they make (mortgage/commercial etc)

3. Is there a demand for the type of loan they make

4. At what rate can they invest at

5. Are they a cash-rich or cash-poor bank. In other words, do they need deposits to fund the loans they make. If not, the CD rates offered will be low.

6. What is the Fed Funds rate - this generally drives "Prime Rate" which determines the rate of many Commercial Loans

These are just a few of the factors and will obviously vary from bank to bank.